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As submitted for confidential review to the Securities and Exchange Commission on May 5, 2017. This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Despegar.com, Corp.

(Exact name of Registrant as specified in its charter)

 

 

 

British Virgin Islands   4700   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Juana Manso 999

Ciudad Autónoma de Buenos Aires, Argentina C1107CBR

Telephone: +54 11 4894-3500

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

National Corporate Research, Ltd.

10 E. 40th Street, 10th floor

New York, NY 10016

Telephone: 800-221-0102

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

with copies to:

 

Juan Francisco Méndez

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, New York 10017

Telephone: (212) 455-2000

 

Ward Breeze

Heidi E. Mayon

Brian C. Hutchings

Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP

220 West 42nd Street, 17th Floor

New York, New York 10036

Telephone: (212) 730-8133

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.

Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☒

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

 

CALCULATION OF REGISTRATION FEE(1)

 

 

 

Title of Each Class of

Securities to be Registered

 

Proposed
Maximum

Aggregate
Offering Price(2)(3)

  Amount of
Registration Fee

Ordinary shares, no par value

  $               $            

 

 

(1) This Registration Statement is being submitted in accordance with the procedures described in the announcement of the Division of Corporation Finance of the Securities and Exchange Commission regarding submission of draft registration statements by emerging growth companies pursuant to the Jumpstart Our Business Startups Act of 2012. Accordingly, a registration fee is not required for this confidential draft Registration Statement submission.
(2) Includes ordinary shares subject to the underwriters’ option to purchase additional ordinary shares. Also includes ordinary shares that are to be offered outside the United States but that may be resold from time to time in the United States in transactions requiring registration under the Securities Act. Offers and sales of ordinary shares outside the United States are being made pursuant to Regulation S and are not covered by the Registration Statement.
(3) Estimated solely for purposes of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment, which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PROSPECTUS (Subject to Completion)

Issued                 , 2017

            Shares

 

 

LOGO

ORDINARY SHARES

 

 

This is the initial public offering of the ordinary shares of Despegar.com, Corp., a business company organized under the laws of the British Virgin Islands. We are offering              ordinary shares and the selling shareholders identified in this prospectus are offering              ordinary shares. We will not receive any proceeds from the sale of ordinary shares by the selling shareholders.

 

 

No public market currently exists for our ordinary shares. We intend to apply to list our ordinary shares on the              under the symbol “DESP”.

We anticipate that the initial public offering price will be between $        and $        per ordinary share.

 

 

We are an “emerging growth company” and a “foreign private issuer” under applicable U.S. federal securities laws and may elect to comply with reduced public company reporting requirements.

 

 

Investing in our ordinary shares involves significant risks. See “Risk Factors” beginning on page 14 of this prospectus.

 

 

 

     Price to Public      Underwriting
Discounts and
Commissions(1)
     Proceeds to
Us (before expenses)
     Proceeds to
Selling
Shareholders
(before expenses)
 

Per share

   $                    $                    $                    $                

Total

   $         $         $         $     

 

(1) See “Underwriting” for a description of the compensation payable to the underwriters.

The selling shareholders have granted the underwriters the option (exercisable within 30 days from the date of this prospectus) to purchase up to additional              ordinary shares on the same terms and conditions set forth above, solely to cover over-allotments, if any. We will not receive any of the proceeds from the sale of such shares by the selling shareholders.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ordinary shares on or about                 , 2017.

 

 

 

Morgan Stanley    Citigroup

Prospectus dated                     , 2017.


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Table of Contents

 

     Page  

Presentation of Financial and Other Information

     ii  

Forward-Looking Statements

     iv  

Summary

     1  

Risk Factors

     14  

Use of Proceeds

     45  

Capitalization

     46  

Dividend Policy

     47  

Dilution

     48  

Exchange Rates

     50  

Selected Financial Data

     56  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     57  

Business

     73  
 

 

 

You should rely only on the information contained in this prospectus, any amendment or supplement to this prospectus or any free writing prospectus we may authorize to be delivered to you. Neither we, the selling shareholders nor any of the underwriters have authorized anyone to provide you with additional or different information. If anyone provides you with different or inconsistent information, you should not rely on it.

The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our ordinary shares. Our business, financial condition, results of operations and prospects may have changed since the date on the front cover of this prospectus.

This prospectus may only be used where it is legal to sell our ordinary shares. We and the selling shareholders have not undertaken any efforts to qualify this offering for offers and sales to the public in any jurisdiction outside the United States, and we do not expect to make offers and sales to the public in jurisdictions located outside the United States. However, we and the selling shareholders may make offers and sales outside the United States in circumstances that do not constitute a public offer or distribution under applicable laws and regulations.

Through and including                     , 2017 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

Unless the context suggests otherwise, references in this prospectus to “Despegar,” the “Company,” “we,” “us” and “our” are to Despegar.com, Corp., a business company incorporated in the British Virgin Islands (“BVI”), and its consolidated subsidiaries. Unless the context suggests otherwise, references to “Latin America” are to South America, Mexico, Central America and the Caribbean.

We were formed as a new business company in BVI on February 10, 2017. On May 3, 2017, the stockholders of our predecessor, Decolar.com, Inc., a Delaware corporation, exchanged their shares for ordinary shares of Despegar.com, Corp. to create a new BVI holding company. Following the exchange, our existing shareholders own shares of Despegar.com, Corp. and Decolar.com, Inc. is a wholly-owned subsidiary of Despegar.com, Corp. The audited consolidated financial statements as of and for the years ended December 31, 2016 and 2015 included in this prospectus are the consolidated financial statements of Decolar.com, Inc., which is our predecessor for accounting purposes, and other information contained in this prospectus related to events and periods prior to May 3, 2017 is based on Decolar.com, Inc.

Unless indicated otherwise, the information included in this prospectus assumes no exercise by the underwriters of the option to purchase up to an additional              ordinary shares from the selling shareholders and that the ordinary shares to be sold in this offering are sold at $        per ordinary share, the midpoint of the price range set forth on the cover page of this prospectus.

Financial Statements

The financial information contained in this prospectus derives from our audited consolidated financial statements as of December 31, 2016 and 2015 and for the fiscal years ended December 31, 2016 and 2015. Our audited consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and presented in dollars.

Non-GAAP Financial Measures

This prospectus includes certain references to Adjusted EBITDA, a non-GAAP financial measure. See “Summary—Summary Financial and Operating Data” for a discussion of our use of Adjusted EBITDA in this prospectus, including the reasons why we believe this information is useful to management and to investors, and a reconciliation of Adjusted EBITDA to net income / (loss). Adjusted EBITDA is not prepared in accordance with U.S. GAAP. Accordingly, you are cautioned not to place undue reliance on this information and should note that Adjusted EBITDA, as calculated by us, may differ materially from similarly titled measures reported by other companies, including our competitors.

We believe that Adjusted EBITDA provides useful information to investors about us and our results because Adjusted EBITDA is among the measures used by our management team to evaluate our financial and operating performance and make day-to-day financial and operating decisions. We believe the exclusion of financial income / (expense), income tax, depreciation, amortization and non-cash share-based compensation expenses in the calculation of Adjusted EBITDA is useful to both management and investors in their evaluation of our business and our financial and operating performance because such expenses are not indicative of our ongoing operations and would make it more difficult for investors to evaluate period-over-period performance of our core operations. Adjusted EBITDA should not be considered in isolation or as a substitute for other measures of financial performance reported in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, including:

 

    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs or contractual commitments;

 

    Adjusted EBITDA does not reflect our financial expenses, including the cash requirements to service interest or principal payments on our indebtedness, or interest income or other financial income;

 

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    Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our income taxes;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and

 

    other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

Currency Presentation

In this prospectus, references to “dollars” and “$” are to the currency of the United States, references to “Brazilian real,” “Brazilian reais” and “R$” are to the currency of Brazil and references to “Argentine pesos” and “AR$” are to the currency of Argentina. See “Exchange Rates” for information regarding historical exchange rates of Brazilian reais and Argentine pesos to dollars.

Rounding

Certain figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be exact arithmetic aggregations or percentages of the figures that precede them.

Trademarks

Our key trademarks are “Despegar.com,” “Decolar.com” and “Decolar.com.br.” Other trademarks or service marks appearing in this prospectus are the property of their respective holders. Solely for the convenience of the reader, we refer to our brands in this prospectus without the ® symbol, but these references are not intended to indicate in any way that we will not assert our rights to these brands to the fullest extent permitted by law.

Market Data

This prospectus includes industry, market and competitive position data and forecasts that we have derived from independent consultant reports, publicly available information, industry publications, official government information and other third-party sources, including Phocuswright, eMarketer, SimilarWeb, STR Global, GSM Association, Skift, SiteMinder and Euromonitor International, as well as our internal data and estimates. Independent consultant reports, industry publications and other published sources generally indicate that the information contained therein was obtained from sources believed to be reliable. The estimates in this prospectus are based upon information obtained from third-party sources and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that this information is reliable, we have not had this information verified by any independent sources.

 

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FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements, principally under the captions “Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business and our market. Many important factors, in addition to those discussed elsewhere in this prospectus, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including:

 

    political, social and macroeconomic conditions in Latin America;

 

    currency exchange rates and inflation;

 

    current competition and the emergence of new market participants in our industry;

 

    government regulation;

 

    our expectations regarding the continued growth of internet usage and e-commerce in Latin America;

 

    failure to maintain and enhance our brand recognition;

 

    our ability to maintain and expand our supplier relationships;

 

    our reliance on technology;

 

    the growth in the usage of mobile devices and our ability to successfully monetize this usage;

 

    our ability to attract, train and retain executives and other qualified employees;

 

    our ability to successfully implement our growth strategies; and

 

    the other factors discussed under section “Risk Factors” in this prospectus.

We operate in a competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The words “believe,” “may,” “should,” “aim,” “estimate,” “continue,” “anticipate,” “intend,” “will,” “expect” and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, capital expenditures, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this prospectus because of new information, future events or other factors. In light of the risks and uncertainties described above, the future events and circumstances discussed in this prospectus might not occur or come into existence and forward-looking statements are thus not guarantees of future performance. Considering these limitations, you should not make any investment decision in reliance on forward-looking statements contained in this prospectus.

 

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SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in our ordinary shares. You should read this entire prospectus carefully, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus, before you decide to invest in our ordinary shares.

Our Company

We are the leading online travel company in Latin America, known by our two brands, Despegar, our global brand, and Decolar, our Brazilian brand. Approximately four million customers transacted on our web and mobile platform generating a total of $3.3 billion in gross bookings in 2016. We have a comprehensive product offering, including airline tickets, packages, hotels and other travel-related products, which enables consumers to find, compare, plan and purchase travel products easily through our marketplace. We provide our network of travel suppliers a technology platform for managing the distribution of their products and access to our users. We believe that our focus on the underpenetrated Latin American online travel market, our knowledge of the consumer and supplier landscape in the region and our ability to manage the business successfully through economic cycles will allow us to continue our industry leadership.

Total Latin America online travel bookings were $17.4 billion in 2015 and are expected to grow to approximately $29.5 billion by 2020, representing an estimated compound annual growth rate (“CAGR”) of 11.1%, according to Phocuswright. Penetration of online travel bookings is expected to increase from 29% in 2015 to 40% in 2020. Factors driving the growth in online travel bookings include the increase of internet penetration, further adoption of smartphones, tablets and other mobile devices and a growing middle class with greater access to banking services and credit products, together enabling a larger segment of the growing population to transact online or on mobile devices.

The Latin American travel industry is characterized by significant fragmentation in suppliers across airlines, hotels and other travel products. This fragmentation is compounded by regional complexities, including differences in language, local customs, travel preferences, currencies and regulatory regimes across the more than 40 countries in the region. These factors create challenges for suppliers to reach customers directly and, consequently, create a significant market opportunity for us.

We believe we have the broadest travel portfolio among online travel agencies (“OTAs”) in Latin America, with inventory from global suppliers, including over 200 airlines and over 300,000 hotels, as well as approximately 900 car rental agencies and 300 destination services suppliers with more than 7,000 activities. Additionally, we have accumulated approximately 8.5 million user-generated reviews, of which 1.9 million were submitted in 2016, which we believe drive user engagement. Our business benefits from network effects: our large customer base helps us to attract additional travel suppliers and, in turn, a larger network of travel suppliers helps us to attract new customers by enhancing our product offering. Additionally, as we continue to grow our marketplace, we are increasingly able to offer more competitive pricing and product availability to our customers as well as enhance the effectiveness of our marketing strategy.

We have grown significantly since our founding in 1999 and through the recent economic and currency volatility. In the years ended December 31, 2016 and 2015, we generated gross bookings of $3.3 billion and $3.6 billion, respectively, and revenue of $411.2 million and $421.7 million, respectively. During the same periods, we had net income / (loss) of $17.8 million and $(85.3) million, respectively, and Adjusted EBITDA of $48.6 million and $(39.1) million, respectively. See “— Summary Financial and Operating Data” for a description of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to income / (loss), the most directly comparable U.S. GAAP financial measure.

 



 

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Travel Market Opportunity in Latin America

Latin America is one of the largest and most diverse regions in the world. Comprised of over 40 countries with a total population of over 600 million, the region encompasses multiple languages, currencies and regulatory regimes. The travel market serving Latin American consumers presents a significant opportunity for us due to its large market size, highly fragmented base of travel suppliers and rapid growth in the adoption of technology-based solutions for consumers and travel suppliers.

Large and Growing Travel Industry

The Latin American travel industry, comprised of air, hotel and a vast array of other travel-related products within Latin America and inbound to the region, represented a $60.2 billion market as of 2015 and is expected to grow at an estimated CAGR of 4.0% to $73.3 billion in 2020. In 2015, airline bookings in Latin America were $20.3 billion, hotel bookings were $29.8 billion and other travel-related products bookings, including car rentals and destination services, such as tour operators, were $10.2 billion, according to Phocuswright.

Long-term favorable macroeconomic trends in the region have contributed to the expansion of the middle class and increased consumption in the region. According to the World Bank, the middle class (defined as per capita income of $3,650 to $18,250 per year) comprised 35% of the Latin American population in 2014, compared to less than 25% a decade prior. This amounted to an additional 108 million people moving into the middle class. The growth in the middle class and the expansion of gross domestic product (“GDP”) per capita have increased disposable income available for discretionary purchases, including travel.

Overview of Suppliers in the Latin American Travel Industry

The Latin American travel industry is characterized by significant supplier fragmentation across airlines, hotels and other travel products. Regional complexities, including differences in language, local customs, travel preferences, currencies and regulatory regimes across the more than 40 countries in the region, create challenges for suppliers to reach customers directly, at scale and across the region.

The airline industry in the region is highly fragmented, as evidenced by the fact that the largest four airlines in Latin America by bookings accounted for approximately 40% of total bookings per year in 2015 in comparison to 68% in the United States during the same period, according to Euromonitor. Additionally, Latin America’s hotel industry is characterized by higher fragmentation and lower occupancy rates than that of other developed markets. In Latin America, the top ten hotel chains had a 15.3% market share in 2015, compared to 51.8% in the United States during the same period, according to Euromonitor. Furthermore, a large portion of the room capacity in Latin America is provided by independent hotels, with major chains accounting for only 46% of total capacity, compared to 72% in the United States, according to Skift and SiteMinder. The hotel occupancy rate in South America was 55% in 2016, compared to 65% in North America and 70% in Europe, according to STR Global.

As the leading OTA in Latin America, we believe we are well positioned to succeed as consumers’ destination of choice for fast, easily searchable and more transparent travel research, planning and booking. As our customer base and brand recognition have grown, we have been able to leverage our user data, including travel history and preferences, to serve personalized recommendations to drive higher customer conversion. Additionally, we have been able to provide attractive pricing and availability of travel products to our customers through scale and by bundling multiple travel products together in a single offer.

 



 

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Trends Driving Online Travel and Our Growth

An expanding and evolving travel market, coupled with greater internet, smartphone and other mobile device penetration, is expected to drive robust growth in online travel bookings in Latin America. Total Latin America online travel bookings were $8.2 billion in 2010 and $17.4 billion in 2015, and are expected to nearly double to approximately $29.5 billion by 2020, an estimated CAGR of 11.1%, according to Phocuswright.

According to Phocuswright, online travel penetration in Latin America, measured as online bookings as a percentage of total travel bookings, increased from 14% in 2010 to 29% in 2015 and is expected to climb to 40% by 2020. By comparison, in developed markets like the United States and Europe, online booking penetration already exceeds 45%. As consumers shift to researching and booking travel online, travel suppliers have adapted their offerings and deepened their relationships with online marketing and booking channels, such as OTAs, to generate revenue. OTAs provide travel suppliers with scale and distribution into new and existing markets and 24/7 customer service and localization services, including language and payment capabilities. Factors driving the growth in online travel include:

 

    Increasing internet penetration. In 2015, there were approximately 328 million internet users in Latin America, according to eMarketer, representing 54% of the population, which is expected to increase to approximately 387 million by 2019, representing penetration of 61%, as compared to 83% in North America.

 

    Increasing adoption of mobile devices. The number of unique mobile subscribers in Latin America is expected to grow by approximately 110 million, according to the GSM Association, bringing the total to 524 million in the region by 2020.

 

    Superior user experience. Online travel booking channels, which include websites and mobile apps, empower travelers to search products and user-generated reviews and easily compare real-time availability and pricing options from multiple travel providers simultaneously, which we believe leads to higher user engagement and customer conversion.

 

    Growth in banked consumers and proliferation of credit products. With the continued development of the Latin American economy, a larger portion of the population has opened bank accounts, enabling access to new forms of payments including credit cards and other financial products. With the increased number of consumers with bank and credit card accounts, more people have the ability to make purchases online.

Our Competitive Strengths

We are the leading OTA in Latin America, offering our customers a broad and diversified selection of travel products at attractive prices. Our leadership position is a result of our following core strengths:

Industry Leader in Latin America

With our launch in 1999, we have benefited from an early mover advantage in Latin America, which has allowed us to achieve significant scale and brand awareness, with approximately 138 million unique visitors to our platform in 2016, based on our internal estimates. In 2016, we had approximately four million customers, primarily in Latin America, generating approximately $3.3 billion in gross bookings. In 2016, we held the #1 ranking of all OTAs in Latin America by desktop traffic, according to SimilarWeb.

We benefit from network effects: our large customer base helps us to attract additional travel suppliers and, in turn, a larger network of travel suppliers helps us to attract new customers by enhancing our product offering. Furthermore, by growing our user base and aggregating different products from our supplier base, we are able to offer attractive pricing and availability of travel products to our customers as well as enhance the effectiveness of our marketing strategy.

 



 

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Strong Brand Recognition and Awareness

We believe that Despegar, our global brand, and Decolar, our Brazilian brand, have the highest brand awareness in online travel across Latin America and are the leading brands in our five largest markets, based on a study we commissioned. We have dedicated significant efforts and resources to building our brands throughout our 18-year history, including more than $1.0 billion in lifetime investment in marketing and branding activities. Based on our own customer surveys, we had a net promoter score (“NPS”) of 61 in 2016, which we believe represents a strong willingness of our customers to recommend our offerings to others. In 2016, almost half of the traffic on our platform was from visitors coming to our platform directly, or through other free channels, rather than visitors coming to our platform through paid channels, largely due to the strength of our brand.

Local Market Expertise and Leadership

We have a strong track record in Latin America, with a point of sale in 20 markets, representing 95% of the region’s population, and with a leading OTA presence in key markets such as Brazil, Argentina, Mexico, Chile, and Colombia. In our two largest markets, Brazil and Argentina, we have operated for 17 and 18 years, respectively. Our knowledge of local consumers, and their buying patterns and travel preferences, as well as our ability to offer financing through our relationships with financial institutions, have enabled us to serve our customers more effectively than global competitors from outside the region. Furthermore, our extensive supplier relationships allow us to offer a greater scale and breadth of offerings than smaller, local competitors. We understand the objectives of and challenges faced by Latin American travel suppliers and we are well-positioned to address those challenges by helping the suppliers grow their businesses, all to the benefit of consumers who receive more choice at attractive pricing.

As the leading Latin American OTA, we have developed long-standing relationships with a wide range of local banks to offer installment payment plans to their credit card holders as an alternative purchase option. We believe that local banks look to partner with us because of our scale, access to our online audience and high transaction volume. We believe this differentiates us from other local and global travel agencies as those agencies either do not offer installment plans or offer installment plans from a more limited selection of financing providers. We believe our portfolio of installment plans is a meaningful driver of traffic to our platform as well as conversion. Approximately 55% of our transactions in 2016 were paid by installment. Our agreements with local banks allow us to offer installment plans without assuming collection risk from the customer.

Leading Mobile Offering

Mobile is an increasingly important part of our business, as consumers are quickly able to access and browse our real-time travel offerings, compare prices and make purchases through their mobile devices. We launched our leading mobile travel apps in 2012. As of December 31, 2016, our mobile apps have more than 25 million cumulative downloads from the iOS App Store and Google Play and we believe they are the most downloaded OTA apps in Latin America for the period from 2012 to 2016. During 2016, mobile, which includes both mobile web and our mobile apps, accounted for approximately 50% of all of our user visits and approximately 19% of our gross bookings. We continue to provide innovative features and functionality to consumers through our mobile apps, including push notifications, dynamic updates, inventory alerts and personalized promotions as well as in-app customer service. Our customers using mobile devices have historically made more repeat transactions than customers using desktop computers. Additionally, our mobile presence allows in-destination marketing, which facilitates cross-selling of additional travel products, such as rental cars and destination services, to customers after they have arrived at their destination.

 



 

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Powerful Data and Analytics Platform

Our large web and mobile audience and transaction volume generate a significant amount of data that allows us to better understand our customers and provide personalized travel offerings and also helps us to drive our sales, marketing and operational strategy. Currently, the majority of visitors to our platform see a personalized landing page based on such factors as user account information, past search and purchasing history and geolocation. We believe that this personalization of the user experience increases engagement and likelihood of purchase.

Effective Marketing Capabilities

We have invested significant resources in our marketing team, which we believe is a significant driver of our business. Through our vertically-integrated, in-house marketing team, we are able to control all aspects of our budget, marketing campaigns and market analytics, without the need for agencies or external consultants. Our marketing team’s local knowledge and expertise in our key markets have allowed us to develop direct relationships with a broad range of local and regional media providers and purchase media directly, avoiding more costly intermediaries. We have invested in our own creative, production and media execution teams, composed of approximately 110 employees, who are quickly able to adapt our marketing strategy, while also leveraging our extensive data and analytics capabilities for more precise audience targeting. Furthermore, we have developed our own software platform for managing our search optimization capabilities, allowing us to tailor messages effectively for specific target markets and customers.

Proven and Experienced Team

Our management team has significant experience in the travel sector and across a variety of industries in Latin America. Members of our management team have worked at organizations such as Expedia, Kimberly-Clark, LATAM Airlines, McKinsey, Morgan Stanley, PwC and Thales, among others. In addition to our management team, we have an extensive technology team including more than 800 developers. By fostering a distinctive, collaborative and high-performance working culture, we attract software developers with world-class talent and offer an engaging working environment for ongoing career development. We believe we are perceived as a top talent recruiter for IT professionals in Latin America, allowing us to attract the highest quality professionals and specialists dedicated to the enhancement of our platform.

Our Strategy

Our goal is to further expand our leading position, continue to innovate by better serving customer and supplier needs and increase our profitability with the following key strategies:

Continue to Grow and Develop Our Customer Base in Latin America

We believe there are significant opportunities to expand further our customer base in the region and, at the same time, increase our share of total travel spend by our customers. During 2016, approximately four million customers transacted on our platform and 58% of our transactions were with repeat customers. Furthermore, we believe that our personalized customer experience, comprehensive product offering and high-impact marketing, such as online advertising, television, radio and print media, will allow us to continue to drive repeat purchases and attract new customers to our platform.

 



 

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Continue to Enhance Our Product Offerings

We believe that we can grow our business by further tailoring and expanding our product offering to address the needs of new and existing customers. For example, in recent years, we have launched new products, including travel insurance, bus trips, vacation rentals, and our local concierge product, in several of our existing markets. We believe this strategy can also be replicated in additional markets. We are continuing to expand our installment payments plans and add other payment options, such as debit cards and acceptance of multiple credit cards in a single transaction, as well as several market-specific localized payment options, to attract more customers to our platform and improve purchase conversion at checkout.

Increase Cross-Selling

We plan to grow our revenue by further capitalizing on our large scale, high volume traffic and technology to continue to increase cross-selling. We believe there is significant room to grow our packages, hotels and other travel products businesses through focused marketing and cross-selling initiatives such as offering exclusive discounts on related products upon checkout, targeted post-sale emails and personalized in-destination mobile marketing with offers for additional travel products that may be relevant to customers’ initial purchase.

Expand and Deepen Supplier Relationships

We plan to expand our supplier base as well as deepen our relationships with suppliers. We intend to continue to provide access to our broad customer base and offer multiple rate plans and package deals, to drive demand for our suppliers, products and help them grow their businesses. We will also continue to invest in our software to offer our suppliers tools to better manage their inventory.

Continue to Invest in Our Mobile Offering

We will continue to invest in our mobile platform by launching new mobile features and functionality. Additionally, we will continue to invest in mobile-focused marketing in order to augment our app downloads and mobile conversion, which we believe represents a significant growth opportunity for our business. Through mobile-only rates, personalized packaged products and in-destination targeted marketing through our mobile apps, we offer our customers an attractive range of travel products in an efficient manner. We believe that providing customers with the ability to use the latest mobile technology, such as account recognition, in-app customer service, automated payment options, location-based targeting and highly-targeted push and in-app notifications, will allow us to continue to accelerate our mobile growth.

Focus on Operational Efficiency

We have invested aggressively over the years to scale our operations and support the growth of our business. We intend to continue enhancing the infrastructure and technology that support our platform in order to facilitate the best product offering, provide reliable site performance and ensure high quality customer service by promptly processing requests and frequently monitoring performance.

We also plan to invest in initiatives to promote further automation and improve efficiency, which will simplify our operations and reduce costs. We will continue to define and implement fraud-prevention strategies, and invest in tools to minimize both fraud exposure and legitimate sales rejections. Moreover, we will continue our focus on minimizing fulfillment leakage and costs by improving internal processes and supplier inventory integration, as we believe there is significant opportunity to capture additional growth in these areas.

 



 

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Opportunistically Pursue Strategic Acquisitions

We may expand our business through opportunistic acquisitions that enable us to enhance our customer offerings, build our marketplace, enter new geographies or enhance our operational infrastructure. We may also consider acquiring additional technology capabilities through alliances and partnerships. We believe our industry and operational experience and our open and collaborative culture will help us to integrate acquired businesses.

Risk Factors

Our business is subject to numerous risks and uncertainties, including those highlighted in “Risk Factors” immediately following this prospectus summary. These risks include:

 

    we are subject to the risks generally associated with doing business in Latin America and risks associated with our business concentration within this region;

 

    general declines or disruptions in the travel industry may adversely affect our business and results of operations;

 

    our business and results of operations may be adversely affected by macroeconomic conditions;

 

    we are exposed to fluctuations in currency exchange rates;

 

    if we are unable to maintain or increase consumer traffic to our sites and our conversion rates, our business and results of operations may be harmed;

 

    we operate in a highly competitive and evolving market, and pressure from existing and new companies, as well as consolidation within the industry, may adversely affect our business and results of operations;

 

    if we are unable to maintain existing, and establish new, arrangements with travel suppliers, our business may be adversely affected;

 

    we rely on the value of our brands, and any failure to maintain or enhance consumer awareness of our brands could adversely affect our business and results of operations;

 

    we rely on information technology, including third-party technology, to operate our business and maintain our competitiveness, and any failure to adapt to technological developments or industry trends, including third-party technology, could adversely affect our business;

 

    we are subject to payments-related fraud risk;

 

    any system interruption, security breaches or lack of sufficient redundancy in our information systems may harm our business;

 

    our ability to attract, train and retain executives and other qualified employees, particularly highly-skilled IT professionals, is critical to our business and future growth;

 

    our business depends on the availability of credit cards and financing options for consumers;

 

    internet regulation in the countries where we operate is scarce, and several legal issues related to the internet are uncertain;

 

    we will be a foreign private issuer under U.S. securities regulations and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. issuer; and

 

    the strategic interests of our significant shareholders may, from time to time, differ from and conflict with our interests and the interests of our other shareholders.

 



 

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Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the U.S. Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions permit reduced obligations with respect to financial data, including presenting only two years of audited financial statements and only two years of selected financial data, and an exception from compliance with the auditor attestation requirements of Section 404 of the U.S. Sarbanes-Oxley Act of 2002.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards. Accordingly, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We may take advantage of these provisions for up to five years or such earlier time that we no longer qualify as an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our share capital held by non-affiliates or issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens.

Corporate Information

Despegar.com, Corp. was formed as a business company incorporated in the BVI on February 10, 2017. On May 3, 2017, the stockholders of our predecessor, Decolar.com, Inc., a Delaware corporation, exchanged their shares for ordinary shares of Despegar.com, Corp. to create a new BVI holding company. Following the exchange, our existing shareholders own shares of Despegar.com, Corp. and Decolar.com, Inc. is a wholly-owned subsidiary of Despegar.com, Corp. The audited consolidated financial statements as of and for the years ended December 31, 2016 and 2015 included in this prospectus are the consolidated financial statements of Decolar.com, Inc., which is our predecessor for accounting purposes, and other information contained in this prospectus related to events and periods prior to May 3, 2017 is based on Decolar.com, Inc.

Our principal executive office is located at Juana Manso 999, Ciudad Autónoma de Buenos Aires, Argentina C1107CBR, and our telephone number is: +54 11 4894 3500. Our agent for service of process in the United States is National Corporate Research, Ltd., located at 10 E. 40th Street, 10th Floor, New York, New York 10016. Our corporate investor relations website can be found at             . Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to invest in our ordinary shares.

 



 

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The Offering

 

Issuer

Despegar.com, Corp., a business company incorporated in the BVI

 

Selling shareholders

The selling shareholders listed in “Principal and Selling Shareholders.”

 

Ordinary shares offered by us

             shares

 

Ordinary shares offered by the selling shareholders

             shares

 

Over-allotment option

The selling shareholders have granted the underwriters a 30-day option to purchase up to             additional ordinary shares solely to cover over-allotments, if any.

 

Share capital before and after the offering

As of the date of this prospectus, our issued and outstanding share capital consists of              ordinary shares. Immediately after the offering, we will have              ordinary shares issued and outstanding.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $        , assuming an initial offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus. The principal purposes of this offering are to increase our financial flexibility and create a public market for our ordinary shares. We intend to use the net proceeds that we receive from this offering for general corporate purposes. We will not receive any proceeds from the sale of ordinary shares by the selling shareholders. See “Use of Proceeds.”

 

Listing

We intend to apply for listing on the              under the symbol “DESP”.

 

Lock-up

We, our executive officers, directors and substantially all of our existing shareholders have executed lock-up agreements preventing them from selling any ordinary shares held by them prior to this offering (other than ordinary shares to be sold in the offering by the selling shareholders), without the prior written consent of Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. on behalf of the underwriters, for a period of 180 days from the date of this prospectus. For more information, see “Underwriting.”

 

Dividend policy

We currently intend to retain all available funds and any future earnings to fund the development and expansion of our business, and we do not anticipate declaring or paying any dividends on our ordinary shares in the foreseeable future. For more information, see “Dividend Policy.”

 



 

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Taxation

See “Taxation” for a discussion of material BVI and U.S. federal income tax matters.

 

Risk factors

See “Risk Factors” beginning on page 14 and the other information included in this prospectus for a discussion of risks you should carefully consider before deciding to invest in our ordinary shares.

In this prospectus, the number of ordinary shares to be outstanding after this offering is based on 58,518,679 ordinary shares outstanding as of May 3, 2017, and excludes the following:

 

    90,626 ordinary shares subject to restricted stock units (“RSUs”) outstanding;

 

    3,175,000 ordinary shares issuable upon the exercise of outstanding options, with a weighted average exercise price of $26.0197 per share, subject to vesting requirements; and

 

    an additional 825,000 ordinary shares reserved for issuance under our 2016 Stock Option Plan.

For more information, see “Management—Equity Incentive Plans.”

Unless otherwise indicated, all information in this prospectus assumes:

 

    no exercise of the underwriters’ option to purchase additional shares from the selling shareholders; and

 

    an initial offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus.

 



 

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Summary Financial and Operating Data

The following summary financial and other operating data of our predecessor, Decolar.com, Inc., and its consolidated subsidiaries should be read together with “Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements included elsewhere in this prospectus.

We derived the summary income statement, balance sheet and cash flow data from our audited consolidated financial statements which are included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP in dollars. Our historical results do not necessarily indicate results expected for any future period.

Summary Income Statement Data

 

     Year Ended December 31,  
     2016      2015  
    

(in thousands,

except per share data)

 

Revenue

     

Air

   $ 205,721       $ 219,817   

Packages, Hotels and Other Travel Products

     205,441         201,894   
  

 

 

    

 

 

 

Total revenue

     411,162         421,711   

Cost of revenue

     126,675         154,213   
  

 

 

    

 

 

 

Gross profit

     284,487         267,498   

Operating expenses

     

Selling and marketing

     121,466         170,149   

General and administrative

     64,683         78,181   

Technology and product development

     63,251         73,535   
  

 

 

    

 

 

 

Total operating expenses

     249,400         321,865   
  

 

 

    

 

 

 

Operating income / (loss)

     35,087         (54,367

Financial income

     8,327         10,797   

Financial expense

     (15,079      (23,702
  

 

 

    

 

 

 

Income / (loss) before income taxes

     28,335         (67,272

Income tax expense

     10,538         18,004   
  

 

 

    

 

 

 

Net income / (loss)

   $ 17,797       $ (85,276
  

 

 

    

 

 

 

Earnings / (loss) per share:

     

Basic

   $ 0.30       $ (1.49

Diluted

   $ 0.30         n/a   

Weighted average shares outstanding:

     

Basic

     58,519         57,078   

Diluted

     58,609         57,186   

 



 

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Summary Balance Sheet Data

 

     As of December 31,  
     2016      2015  
     (in thousands)  

Cash and cash equivalents(1)

   $ 75,968       $ 102,116   

Total assets

     353,710         348,215   

Total liabilities

     435,973         431,348   

Total shareholders’ deficit attributable to Decolar.com, Inc.

     (82,263      (83,133

 

(1) Excludes restricted cash and cash equivalents. See note 3 to our audited consolidated financial statements.

Other Financial and Operating Data

 

     Year Ended
December 31,
 
     2016      2015  
     (in thousands)  

Operational

     

Number of transactions(1)

     

By country

     

Brazil

     2,930         3,630   

Argentina

     1,800         1,790   

Other

     2,480         2,290   
  

 

 

    

 

 

 

Total

     7,210         7,710   

By segment

     

Air

     4,250         4,380   

Packages, Hotels and Other Travel Products

     2,960         3,330   
  

 

 

    

 

 

 

Total

     7,210         7,710   

Gross bookings(2)

   $ 3,260,307       $ 3,591,885   

Financial

     

Adjusted EBITDA (unaudited)(3)

   $ 48,585       $ (39,067

 

(1) The number of transactions is the total number of customer orders completed on our platform in any given period.
(2) Gross bookings is the aggregate purchase price of all travel products booked by our customers through our platform during a given period.
(3) We believe that Adjusted EBITDA, a non-GAAP financial measure, provides useful information to investors about us and our results because Adjusted EBITDA is among the measures used by our management team to evaluate our financial and operating performance and make day-to-day financial and operating decisions. We believe the exclusion of financial income / (expense), income tax, depreciation, amortization and non-cash share-based compensation expenses in the calculation of Adjusted EBITDA is useful to both management and investors in their evaluation of our business and our financial and operating performance because such expenses are not indicative of our ongoing operations and would make it more difficult for investors to evaluate period-over-period performance of our core operations. Adjusted EBITDA should not be considered in isolation or as a substitute for other measures of financial performance reported in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, including:

 

    Adjusted EBITDA does not reflect changes in, including cash requirements for, our working capital needs or contractual commitments;

 



 

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    Adjusted EBITDA does not reflect our financial expenses, or the cash requirements to service interest or principal payments on our indebtedness, or interest income or other financial income;

 

    Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our income taxes;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and

 

    other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

We compensate for the inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of our consolidated financial statements in accordance with U.S. GAAP and reconciliation of Adjusted EBITDA to the most directly comparable U.S. GAAP measure, net income / (loss).

The table below provides a reconciliation of our net income / (loss) to Adjusted EBITDA:

 

     Year ended
December 31,
 
     2016      2015  
     (unaudited)  
     (in thousands)  

Net income / (loss)

   $ 17,797       $ (85,276

Financial income

     (8,327      (10,797

Financial expense

     15,079         23,702   

Income tax expense

     10,538         18,004   

Depreciation expense

     5,089         5,152   

Amortization of intangible assets

     7,835         9,287   

Share-based compensation expense

     574         861   
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 48,585       $ (39,067

 



 

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RISK FACTORS

Prior to investing in our ordinary shares, you should carefully consider the risks described below, in addition to the other information contained in this prospectus. We also may face additional risks and uncertainties that are not presently known to us, or that as of the date of this prospectus we deem immaterial, which may impair our business, financial condition and results of operations. If any of these events occur, the trading price of our ordinary shares could decline, and you may lose all or part of your investment. In general, you take more risk when you invest in the securities of issuers with operations in emerging markets such as Latin American countries than when you invest in the securities of issuers in the United States and other developed markets. The information in this Risk Factors section includes forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of numerous factors, including those described in “Forward-Looking Statements.”

Risks Related to Our Business

We are subject to the risks generally associated with doing business in Latin America.

Our business serves the Latin American travel industry and substantially all of our revenue is derived in Latin American countries. Substantially all of our operations are located in Latin America. Moreover, we have significant revenue from Brazil and Argentina as well as other Latin American countries: in 2016, Brazil and Argentina accounted for 41% and 25% of our transactions, respectively. As a result, we are subject to the risks generally associated with doing business in the region, including:

 

    political, social and macroeconomic instability;

 

    cycles of severe economic downturns;

 

    currency devaluations and fluctuations;

 

    periods of high inflation;

 

    availability, quality and level of usage of the internet and e-commerce;

 

    high levels of credit risk, fraud and lack of secure payment methods;

 

    uncertainty or changes in governmental regulation, including applicable to travel services operations and internet and e-commerce services;

 

    uncertainty or changes in tax laws and regulations;

 

    limited access to financing, both for companies and for consumers;

 

    exchange and capital controls;

 

    limited infrastructure, including in the travel and technology sectors;

 

    adverse labor conditions and difficulties in hiring, training and retaining qualified personnel;

 

    the challenges of doing business across a region with multiple languages, different currencies and regulatory regimes that varies from country to country; and

 

    the impact of adverse global conditions in the region.

Any of these risks could have a material adverse effect on our business, financial condition and results of operations. For more information, see “—Risks Related to Latin America.”

 

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General declines or disruptions in the travel industry may adversely affect our business and results of operations.

Our business is significantly affected by the trends that occur in the travel industry. As the travel industry is highly sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. Trends or events that tend to reduce travel and are likely to reduce our revenue include:

 

    terrorist attacks or threats of terrorist attacks or wars;

 

    fluctuations in currency exchange rates;

 

    health-related risks, such as an outbreak of the Zika virus, H1N1 influenza, Ebola virus, avian flu or any other serious contagious diseases;

 

    increased prices in the airline ticketing, hotel, or other travel-related sectors;

 

    significant changes in oil prices;

 

    travel-related strikes or labor unrest, bankruptcies or liquidations;

 

    travel-related accidents or the grounding of aircraft due to safety concerns;

 

    political unrest;

 

    high levels of crime;

 

    natural disasters or severe weather conditions, including volcanic eruptions, hurricanes, flooding or earthquakes;

 

    changes in immigration policy; and

 

    travel restrictions or other security procedures implemented in connection with any major events, particularly those that affect travel by Latin Americans within their respective countries, across the region and outbound from the region to the rest of the world.

We could be severely and adversely affected by declines or disruptions in the travel industry and, in many cases, have little or no control over the occurrence of such events. Such events could result in a decrease in demand for our travel services. Any decrease in demand, depending on the scope and duration, could significantly and adversely affect our business and financial performance over the short and long term.

Our business and results of operations may be adversely affected by macroeconomic conditions.

Consumer purchases of discretionary items generally decline during periods of recession and other periods in which disposable income is adversely affected. As a substantial portion of travel expenditure, for both business and leisure, is discretionary, the travel industry tends to experience weak or reduced demand during economic downturns.

General adverse economic conditions, including the possibility of recessionary conditions in Latin America or a worldwide economic slowdown, would adversely impact our business, financial condition and results of operations. Past weakness and uncertainty in the global economy and in Latin America have negatively impacted consumer spending patterns and demand for travel services and may continue to do so in the future. For example, consumer spending patterns and demand for travel services were negatively impacted by the 2008-2009 global financial crisis that arose in the United States, as well as the recession in Brazil of 2015-2016 and the Argentine financial crisis of 2001-2002 and recession of 2016.

As an intermediary in the travel industry, a significant portion of our revenue is affected by prices charged by our travel suppliers. During periods of poor economic conditions, airlines and hotels tend to reduce rates or offer discounted sales to stimulate demand, thereby reducing our commission-based income. A slowdown in economic conditions may also result in a decrease in transaction volumes and adversely affect our revenue,

 

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including our consumer fee-based income. It is difficult to predict the effects of the uncertainty in global economic conditions. If economic conditions decline globally or in Latin America, our business, financial condition and results of operations could be adversely impacted.

We are exposed to fluctuations in currency exchange rates.

Because we conduct our business outside the United States and receive almost all of our revenue in currencies other than the dollar, but report our results in dollars, we face exposure to adverse movements in currency exchange rates. The currencies of certain countries where we operate, including Brazil and Argentina, have historically experienced significant devaluations. For example, in December 2015, the Argentine government let the Argentine peso float freely, after several years of controlling foreign exchange rates, resulting in a significant devaluation. The results of operations in the countries where we operate are exposed to foreign exchange rate fluctuations as the financial results of the applicable subsidiaries are translated from the local currency into dollars upon consolidation. If the dollar weakens against foreign currencies, the translation of these foreign-currency-denominated transactions will typically result in increased revenue and operating expenses, and our revenue and operating expenses will typically decrease if the dollar strengthens. Moreover, if the dollar strengthens against the foreign currencies of countries in which we operate, the purchasing power of our customers from those countries could be negatively affected by potentially increased prices in local currencies, and we could experience a reduction in the demand for our travel services.

Additionally, foreign exchange exposure also arises from pre-pay transactions, where we accept upfront payments for bookings in the customer’s home currency, but payment to the hotel is not due until after the customer checks out, and is paid by us in the hotel’s home currency. We are therefore exposed to foreign exchange risk between the time of the initial reservation and the time when the hotel is paid.

We minimize our foreign currency exposures by managing natural hedges, netting our current assets and current liabilities in similarly denominated foreign currencies, and managing short term loans and investments for hedging purposes. Additionally, from time to time we enter into derivative transactions. However, depending on the size of the exposures and the relative movements of exchange rates, if we choose not to hedge or fail to hedge effectively our exposure, we could experience a material adverse effect on our consolidated financial statements and financial condition.

We have incurred operating losses in the past and may experience earnings declines or net losses in the future.

We have incurred operating losses in the past, though in 2016 we had positive net income. We cannot assure you that we can sustain profitability or avoid net losses in the future. Our ability to remain profitable depends on various factors, including our ability to generate additional transaction volume and revenue and control our costs and expenses. We may incur significant losses in the future for a number of reasons, including the other risks described in this prospectus, and we may further encounter unforeseen expenses, difficulties, complications, delays and other unknown events. If our costs and expenses increase at a more rapid rate than our revenue, we may not be able to sustain profitability and may incur losses.

If we are unable to maintain or increase consumer traffic to our sites and our conversion rates, our business and results of operations would be harmed.

Our ability to generate revenue depends, in part, on our ability to attract consumers to our platform. If we fail to maintain or increase consumer traffic and our conversion rates, our ability to grow our revenue could be negatively affected. We expect that our efforts to maintain or increase traffic are likely to include, among other things, significant increases to our marketing expenditures. We cannot assure you that any increases in our expenses will be successful in generating additional consumer traffic.

 

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There are many factors that could negatively affect user retention, growth, and engagement, including if:

 

    we fail to offer compelling products;

 

    users increasingly engage with competing products instead of ours;

 

    we fail to introduce new and exciting products and services or those we introduce are poorly received;

 

    our websites or mobile apps fail to operate effectively on the iOS and Android mobile operating systems;

 

    we do not provide a compelling user experience;

 

    we are unable to combat spam or other hostile or inappropriate usage on our products, or if our anti-fraud measures are too conservative and we reject too many bona fide transactions;

 

    there are changes in user sentiment about the quality or usefulness of our existing products;

 

    there are concerns about the privacy implications, safety, or security of our products;

 

    our suppliers decide to discontinue the offering of their products through our platform;

 

    technical or other problems frustrate the user experience, particularly if those problems prevent us from delivering our products in a fast and reliable manner;

 

    we fail to provide adequate service to our customers and suppliers;

 

    we or other companies in our industry are the subject of adverse media reports or other negative publicity; or

 

    we do not maintain our brand image or our reputation is damaged.

Any decrease to user retention, growth, or engagement could render our products less attractive to consumers and would seriously harm our business.

We operate in a highly competitive and evolving market, and pressure from existing and new companies may adversely affect our business and results of operations.

The travel market in Latin America and worldwide is intensely competitive and rapidly evolving. Factors affecting our competitive success include, among other things, price, availability and breadth of choice of travel services and products, brand recognition, customer service, fees charged to travelers, ease of use, accessibility, consumer payment options and reliability. We currently compete with both established and emerging providers of travel services and products, including regional offline travel agency chains and tour operators, global OTAs with presence in Latin America and smaller, country-specific online and offline travel agencies and tour operators. In addition, our customers have the option to book travel directly with airlines, hotels and other travel service providers who are increasingly focused on further refining their online offerings. Large, established internet search engines have also launched applications offering travel itineraries in destinations around the world, and meta-search companies who can aggregate travel search results also compete against us for customers. In addition, we face price competition from new entrants that offer discounted rates and other incentives from time to time, as well as social media channels that market travel products and experiences. Some of our competitors have significantly greater financial and other resources than us. From time to time we may be required to reduce service fees and revenue margins in order to compete effectively and maintain or gain customers, brand awareness and supplier relationships.

Further, we may also face increased competition from new entrants in our industry. We cannot assure you that we will be able to successfully compete against existing or new competitors. If we are not able to compete effectively, our business, financial condition and results of operations may be adversely affected.

Some travel suppliers are seeking to decrease their reliance on distribution intermediaries like us by promoting direct distribution channels. Many airlines, hotels, car rental companies and tour operators have call centers and have established their own travel distribution websites and mobile applications. From time to time,

 

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travel suppliers offer advantages, such as bonus loyalty awards and lower transaction fees or discounted prices, when their services and products are purchased from supplier-related channels. We also compete with competitors which may offer less content, functionality and marketing reach but at a relatively lower cost to suppliers. If our access to supplier-provided content or features were to be diminished either relative to our competitors or in absolute terms or if we are unable to compete effectively with travel supplier-related channels or other competitors, our business could be materially and adversely affected.

If we are unable to maintain existing, and establish new, arrangements with travel suppliers, our business may be adversely affected.

Our business is dependent on our ability to maintain our relationships and arrangements with existing suppliers, such as airlines, global distribution system (GDS) service providers, hotels, hotel consolidators and destination services companies, car rental companies, bus operators, cruise companies and travel assistance providers, as well as our ability to establish and maintain relationships with new travel suppliers. In addition, the hotel and other lodging products that we offer through our platform for all countries outside Latin America are provided to us exclusively by affiliates of Expedia and Expedia is the preferred provider to us of hotel and other lodging products in Latin America pursuant to a lodging outsourcing agreement (the “Expedia Outsourcing Agreement”). In the event the Expedia Outsourcing Agreement is terminated, we may be required to pay a $125.0 million termination fee. For more information on the Expedia Outsourcing Agreement, see “Certain Relationships and Related Persons Transactions.” Adverse changes in key arrangements with our suppliers, including an inability of any key travel supplier to fulfill its payment obligation to us in a timely manner, increasing industry consolidation or our inability to enter into or renew arrangements with these parties on favorable terms, if at all, could reduce the amount, quality, pricing and breadth of the travel services and products that we are able to offer, which could adversely affect our business, financial condition and results of operations. For example, American Airlines discontinued our access to its inventory from July 2013 to March 2016, until a mutually satisfactory settlement was reached and American Airlines resumed supplying us with airline tickets.

In addition, adverse economic developments affecting the travel industry could also adversely impact our ability to maintain our existing relationships and arrangements with one or more of our suppliers. We cannot assure you that our agreements or arrangements with our travel suppliers or travel-related service providers will continue or that our travel suppliers or travel-related service providers will not further reduce commissions, terminate our contracts, make their products or services unavailable to us as part of exclusive arrangements with our competitors or default on or dispute their payment or other obligations towards us, any of which could reduce our revenue and margins or may require us to initiate legal or arbitral proceedings to enforce their contractual payment obligations, which may adversely affect our business, financial condition and results of operations.

We rely on the value of our brands, and any failure to maintain or enhance consumer awareness of our brands could adversely affect our business and results of operations.

We believe continued investment in our brand is critical to retain and expand our business. We believe that our brands are well recognized in the Latin American travel market. We have invested in developing and promoting our brand since our inception and expect to continue to spend on maintaining the value of our brands to enable us to compete against increased spending by competitors and to allow us to expand into new services or increase our penetration in certain markets where our brands are less well known.

We cannot assure you that we will be able to successfully maintain or enhance consumer awareness of our brands. Even if we are successful in our branding efforts, such efforts may not be cost-effective. Our marketing costs may also increase as a result of inflation in media pricing. If we are unable to maintain or enhance consumer awareness of our brands and generate demand in a cost-effective manner, it would negatively impact our ability to compete in the travel industry and would have a material adverse effect on our business, financial condition and results of operations.

 

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We rely on information technology to operate our business and maintain our competitiveness, and any failure to adapt to technological developments or industry trends could adversely affect our business.

We depend on the use of sophisticated information technology and systems, for search and reservation for airline tickets, hotels, and any of the other products that we offer on our platform, as well as payments, refunds, customer relationship management, communications and administration. As our operations grow in both size and scope, we must continuously improve and upgrade our systems and infrastructure to improve services, features and functionality, while maintaining the reliability and integrity of our systems and infrastructure in a cost-effective manner. Our future success also depends on our ability to upgrade our services and infrastructure ahead of rapidly evolving consumer demands while continuing to improve the performance, features and reliability of our service in response to competitive offerings.

We may not be able to maintain or replace our existing systems or introduce new technologies and systems as quickly as our competitors, in a cost-effective manner or at all. We may also be unable to devote adequate financial resources to develop or acquire new technologies and systems in the future.

We may not be able to use new technologies effectively, or we may fail to adapt our websites, mobile apps, transaction processing systems and network infrastructure to meet consumer requirements or emerging industry standards, comply with government regulation or prevent fraud or security breaches. If we face material delays in introducing new or enhanced solutions, our customers may forego the use of our services in favor of those of our competitors. Any of these events could have a material adverse effect on our business, financial condition and results of operations.

Some of our airline suppliers (including our GDS service providers) may reduce or eliminate the commission and other compensation they pay to us for the sale of airline tickets and this could adversely affect our business and results of operations.

In our air business, we generate revenue through commissions and incentive payments from airline suppliers (including our GDS service providers) and service fees charged to our customers. Our airline suppliers (including our GDS service providers) may reduce or eliminate the commissions, incentive payments or other compensation they pay to us. To the extent any of our airline suppliers (including our GDS service providers) reduce or eliminate the commissions, incentive payments or other compensation they pay to us, our revenue may be reduced unless we are able to adequately mitigate such reduction by increasing the service fee we charge to our customers or increasing our transaction volume in a sustainable manner. However, any increase in service fees may also result in a loss of potential customers. In addition, our arrangement with the airlines that supply airline tickets to us may limit the amount of service fee that we are able to charge our customers. Our business would also be negatively impacted if competition or regulation in the Latin American travel industry causes us to have to reduce or eliminate our service fees.

Our business and results of operations could be adversely affected if one or more of our major travel suppliers suffers a deterioration in its financial condition or restructures its operations.

As we are an intermediary in the travel industry, a substantial portion of our revenue is affected by the prices charged by our suppliers, including airlines, GDS service providers, hotels, destination service providers, car rental suppliers, tour operators, supply aggregators (such as other OTAs), cruise operators, bus service providers and travel assistance providers, and the volume of products offered by our suppliers. As a result, if one or more of our major suppliers suffers a deterioration in its financial condition or restructures its operations, it could adversely affect our business, financial condition and results of operations. Accordingly, our business may be negatively affected by adverse changes in the markets in which our suppliers operate.

In particular, as a substantial portion of our revenue depends on our sales of airline flights, we could be adversely affected by changes in the airline industry, including consolidation or bankruptcies and liquidations, and in many cases, we will have no control over such changes. Any consolidation in the airline industry in the

 

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future would result in fewer airlines with potentially more bargaining power with respect to the commissions and incentive payments or other fees they pay to intermediaries. Events or weaknesses specific to the airline industry that could negatively affect our business include air fare fluctuations, airport, airspace and landing fee increases, seat capacity constraints, removal of destinations or flight routes, travel-related strikes or labor unrest, imposition of taxes or surcharges by regulatory authorities and fuel price volatility. While decreases in prices for flights and other travel products generally increase demand, such price decreases generally also have a negative effect on the commissions we earn, particularly in our non-flight business, which is more dependent on commissions than our flight business. The overall effect of a price increase or decrease is therefore uncertain.

In the past several years, several major airlines have filed for bankruptcy, recently exited bankruptcy, or discussed publicly the risk of bankruptcy. In addition, some of these airlines have merged, or discussed merging, with other airlines. If one of our major airline suppliers merges or consolidates with, or is acquired by, another company that either does not participate in the GDS systems we use, or that participates in such systems but at substantially lower levels, the surviving company may elect not to make supply available to us or may elect to do so at lower levels than the previous supplier. Similarly, in the event that one of our major airline suppliers voluntarily or involuntarily declares bankruptcy and is subsequently unable to successfully emerge from bankruptcy, and we are unable to replace such supplier, our business would be adversely affected. Further consolidation of one or more of the major airlines could result in further capacity reductions, a reduction in the number of airline tickets available for booking on our website and increased air fares, which may have a negative impact on demand for travel products.

We are subject to payments-related fraud risks.

We are held liable for accepting fraudulent bookings on our platform and other bookings for which payment is successfully disputed by the cardholder, both of which lead to the reversal of payments received by us for such bookings (referred to as a “chargeback”). Our results of operations may be negatively affected by our acceptance of fraudulent bookings made using credit cards, as occurred in 2015, when there was an increase in fraud in the Latin American travel industry, particularly in Latin America. In the fourth quarter of 2015, we experienced an increase in attempted fraudulent transactions in Brazil, resulting in both the first quarter of 2016 and the fourth quarter of 2015 in an increase in fraud expense in the form of chargebacks. We also experienced a decrease in gross bookings in both quarters, as we imposed more restrictive anti-fraud protocol in response to the uptick in fraudulent transactions that resulted in more rejections of legitimate transactions. Our ability to detect and combat fraud, which has become increasingly common and sophisticated, may be negatively impacted by the adoption of new payment methods, the emergence and innovation of new technology platforms, including smartphones, tablets and other mobile devices, and our expansion, including into geographies with a history of elevated fraudulent activity. If we are unable to effectively combat fraud on our platform or if we otherwise experience increased levels of chargebacks, our results of operations could be materially adversely affected.

We have agreements with companies that process customer credit and debit card transactions for the facilitation of customer bookings of travel services from our travel suppliers. These agreements allow these processing companies, under certain conditions, to hold an amount of our cash (referred to as a “holdback”) or require us to otherwise post security equal to a portion of bookings that have been processed by such companies. These processing companies may be entitled to a holdback or suspension of processing services upon the occurrence of specified events, including material adverse changes in our financial condition. Moreover, there can be no assurances that the rates we pay for the processing of customer credit and debit card transactions will not increase, which could reduce our revenue thereby adversely affecting our business and financial performance.

Moreover, credit card networks, such as Visa and MasterCard, have adopted rules and regulations that apply to all merchants which process and accept credit cards and include the Payment Card Industry Data Security Standards (“PCI DSS”). Under these rules, we are required to adopt and implement internal controls over the use, storage and security of card data. We are currently PCI DSS certified and in compliance with PCI DSS. We assess our compliance with PCI DSS rules on a periodic basis and make necessary improvements to our internal controls as needed. Failure to comply may prevent us from processing or accepting credit cards.

 

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In addition, when onboarding suppliers to our platform, we may fail to identify falsified or stolen supplier credentials, which may result in fraudulent bookings or unauthorized access to personal or confidential information of users of our websites and mobile applications. A fraudulent supplier scheme could also result in negative publicity and damage to our reputation, and could cause users of our websites and mobile applications to lose confidence in the quality of our services. Any of these events would have a negative effect on the value of our brands, which could have an adverse impact on our financial performance.

Any system interruption, security breaches or lack of sufficient redundancy in our information systems may harm our businesses.

We rely on information technology systems, including the internet and third-party hosted services, to support a variety of business processes including booking transactions, and activities and to store sensitive data, including our proprietary business information and that of our suppliers, personally identifiable information and other information of our customers and employees and data with respect to invoicing and the collection of payments, accounting and procurement activities. In addition, we rely on our information technology systems to process financial information and results of operations for internal reporting purposes and to comply with financial reporting, legal, and tax requirements. The risk of a cybersecurity-related attack, intrusion, or disruption, including by criminal organizations, hacktivists, foreign governments, and terrorists, is persistent. We have experienced and may in the future experience system interruptions that make some or all of these systems unavailable or prevent us from efficiently fulfilling orders or providing services to third parties. Interruptions of this nature could include security intrusions and attacks on our systems for fraud or service interruption. Significant interruptions, outages or delays in our internal systems, or systems of third parties that we rely upon—including multiple co-location providers for data centers, cloud computing providers for application hosting, and network access providers—and network access, or deterioration in the performance of such systems, would impair our ability to process transactions, decrease our quality of service that we can offer to our customers, damage our reputation and brands, increase our costs and/or cause losses.

Potential security breaches to our systems or the systems of our service providers, whether resulting from internal or external sources, could significantly harm our business. We devote significant resources to network security, monitoring and testing, employee training, and other security measures, but we cannot assure you that these measures will prevent all possible security breaches or attacks. A party, whether internal or external, that is able to circumvent our security systems could misappropriate customer or employee information, proprietary information or other business and financial data or cause significant interruptions in our operations. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches, and reductions in website availability could cause a loss of substantial business volume during the occurrence of any such incident. Because the techniques used to sabotage security change frequently, often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventive measures. We have obtained cyberinsurance, however we cannot assure you that our insurance will be sufficient to protect against our losses or will cover all potential incidents. Moreover, security breaches could result in negative publicity and damage to our reputation, exposure to risk of loss or litigation and possible liability due to regulatory penalties and sanctions or pursuant to our contractual arrangements with payment card processors for associated expenses and penalties. Security breaches could also cause customers and potential users and our suppliers to lose confidence in our security, which would have a negative effect on the value of our brands. Failure to adequately protect against attacks or intrusions, whether for our own systems or those of our suppliers, could expose us to security breaches that could have an adverse impact on our financial performance. For example, in 2014, hackers breached our system security and accessed credit card information from customers who had made purchases through our platform, representing approximately 663,000 unique credit card numbers.

In addition, we cannot assure you that our backup systems or contingency plans will sustain critical aspects of our operations or business processes in all circumstances, many other systems are not fully redundant and our disaster recovery or business continuity planning may not be sufficient. Fire, flood, power loss, telecommunications failure, break-ins, earthquakes, acts of war or terrorism, acts of God, computer viruses,

 

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electronic intrusion attempts from both external and internal sources and similar events or disruptions may damage or impact or interrupt computer or communications systems or business processes at any time. Although we have put measures in place to protect certain portions of our facilities and assets, any of these events could cause system interruption, delays and loss of critical data, and could prevent us from providing services to our customers and/or third parties for a significant period of time. Remediation may be costly and we may not have adequate insurance to cover such costs. Moreover, the costs of enhancing infrastructure to attain improved stability and redundancy may be time consuming and expensive and may require resources and expertise that are difficult to obtain.

Our ability to attract, train and retain executives and other qualified employees, particularly highly-skilled IT professionals, is critical to our business and future growth.

Our business and future success is substantially dependent on the continued services and performance of our key executives, senior management and skilled personnel, particularly personnel with experience in our industry and our information technology and systems. Any of these individuals may choose to terminate their employment with us at any time and we cannot assure you that we will be able to retain these employees or find adequate replacements, if at all. The specialized skills we require can be difficult, time-consuming and expensive to acquire and/or develop and, as a result, these skills are often in short supply. A lengthy period of time may be required to hire and train replacement personnel when skilled personnel depart our company. Our ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees. We may be required to increase our levels of employee compensation more rapidly than in the past to remain competitive in attracting the quality of employees that our business requires. Competition for these personnel is intense, and we cannot assure you that we will be able to successfully attract, integrate, train, retain, motivate and manage sufficiently qualified personnel. If we do not succeed in attracting well-qualified employees or retaining or motivating existing employees, our business and prospects for growth could be adversely affected.

In addition, we compete for talented individuals not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, among others, and there is a limited pool of individuals who have the skills and training needed to help us grow our company. High attrition rates of qualified personnel could have an adverse effect on our ability to expand our business, as well as cause us to incur greater personnel expenses and training costs.

Moreover, while we sometimes require our senior management to sign non-compete agreements, typically for a period of one year following termination, we cannot assure you that our former employees will not compete with us in the future. In addition, these non-compete agreements may be difficult to enforce in certain Latin-American jurisdictions.

We rely on third-party systems and service providers and any disruption or adverse change in their businesses could have a material adverse effect on our business.

We currently rely on a variety of third-party systems, service providers and software companies, including the GDS and other electronic central reservation systems used by airlines, various channel managing systems and reservation systems used by other suppliers, as well as other technologies used by payment gateway providers. In particular, we rely on third parties for:

 

    the hosting of our websites;

 

    certain software underlying our technology platform;

 

    transportation ticketing agencies to issue transportation tickets and travel assistance products, confirmations and deliveries;

 

    third-party local tour operators to deliver on-site services to our packaged-tour customers;

 

    assistance in conducting searches for airfares and process air ticket bookings;

 

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    processing hotel reservations for hotels not connected to our management system;

 

    processing credit card, debit card and net banking payments;

 

    providing computer infrastructure critical to our business; and

 

    providing customer relationship management (CRM) services.

Any interruption or deterioration in performance of these third-party systems and services could have a material adverse effect on our business. Further, the information provided to us by certain of these third-party systems may not always be accurate due to either technical glitches or human error, and we may incur monetary and/or reputational loss as a result.

Our success is also dependent on our ability to maintain our relationships with these third-party systems and service providers. In the event our arrangements with any of these third parties are impaired or terminated, we may not be able to find an adequate alternative source of systems support on a timely basis or on commercially reasonable terms, which could result in significant additional costs or disruptions to our business. Any security breach at one of these companies could also affect our customers and harm our business.

We rely on banks or payment processors to collect payments from customers and facilitate payments to suppliers, and changes to credit card association fees, rules or practices may adversely affect our business.

We rely on banks or payment processors to process collections and payments, and we pay a fee for this service. In the countries where we operate, the number of processors is limited so there is little or no competition among processors. From time to time, credit card associations may increase the interchange fees that they charge for each transaction using one of their cards.

For certain payment methods, including credit cards, we pay transaction and other fees, which may increase over time and raise our operating costs, lowering profitability. We rely on third parties to provide payment processing services and it could disrupt our business if these companies become unwilling or unable to provide these services to us. If we fail to comply with these third-party servicers’ rules or requirements, or if our data security systems are breached or compromised (similar to the increase in fraud attempts we experienced in the fourth quarter of 2015 in Brazil), we may be liable for chargebacks, credit card issuing banks’ costs, fines and higher transaction fees and we may lose our ability to accept credit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments. If any of these situations were to occur, our business and results of operations could be adversely affected.

Our business depends on the availability of credit cards and financing options for consumers.

Our business is highly dependent on the availability of credit cards and financing options for consumers. In 2016 and 2015, substantially all our net sales were derived from payments effected through credit cards. Moreover, approximately 55% of transactions in 2016 were paid by installment, using credit cards. As a result, the continued growth of our business is also partially dependent on the expansion of credit card penetration in Latin America, which may never reach a percentage similar to more developed countries for reasons that are beyond our control, such as low credit availability for a significant portion of the population in such countries. The provision of credit cards and other consumer financing depends on the product offerings at local and regional banks operating in the countries we serve. In the past, banking systems in Latin America have suffered disruptions and significantly limited availability and increased cost of consumer credit. Banks may also change their product offerings that they provide to consumers, or may change the availability or costs of such products, due to credit, regulations or other reasons beyond our control. For example, Argentina recently enacted regulations requiring vendors to disclose to customers the full price of items purchased by installment plan, including implicit financing costs. Furthermore, in Argentina, the rules that govern the credit card business provide for variable caps on the interest rates that financial entities may charge clients and the fees that they may charge merchants. Moreover, general legal provisions exist pursuant to which courts could decrease the interest rates and fees agreed upon by the parties on the grounds that they are excessively high.

 

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We rely on various banks to provide financing to our customers who elect to use an installment plan payment option. Some of our competitors also offer installment plans and may offer installment plans with more attractive terms. If we are not able to offer a competitive selection of installment plan financing at competitive rates, our business and results of operations could be adversely affected. Moreover, our agreements with local banks allow us to offer installment payment plans without assuming collection risk from the customer and receive payment in full (provided we choose not to factor such installment payments). We cannot assure you that local banks will not change their credit practices in the future. If our arrangements with local banks are impaired or terminated, our business and results of operations could be adversely affected.

Furthermore, as secure methods of payment for e-commerce transactions have not been widely adopted in certain emerging markets, consumers and other merchants may have relatively low confidence in the integrity of e-commerce transactions and remote payment mechanisms, which may have a material and adverse effect on our business prospects or limit our growth.

Our business could be negatively affected by changes in search engine algorithms and dynamics or other traffic-generating arrangements.

We increasingly utilize internet search engines such as Google, principally through the purchase of travel-related keywords, to generate a significant portion of the traffic to our websites. Search engines frequently update and change the algorithms that determine the placement and display of results of a user’s search. It is possible that any such update could negatively affect us or may negatively affect us relative to our competitors. We have developed search engine management tools to bid more efficiently on portfolios of travel-related keywords and we have a search engine management team dedicated to reviewing the return of investment of all biddings.

In addition, a significant amount of traffic is directed to our websites through participation in pay-per-click and display advertising campaigns on search engines, including Google, and travel metasearch engines, including TripAdvisor and trivago. A search or metasearch engine could, for competitive or other purposes, adopt emerging technologies, such as voice, or alter its search algorithms or results, any of which could cause us to place lower in search query results, or exclude our website from the search query results. If a major search engine changes its algorithms or results in a manner that negatively affects the search engine ranking, paid or unpaid, of our websites, or if competitive dynamics impact the costs or effectiveness of search engine optimization, search engine marketing or other traffic-generating arrangements in a negative manner, this may have a material and adverse effect on our business and financial performance. In addition, certain metasearch engines have added or may add various forms of direct or assisted booking functionality to their sites. To the extent such functionality is promoted at the expense of traditional paid listings, this may reduce the amount of traffic to our websites or those of our affiliates.

Changes in internet browser functionality could result in a decrease in our overall revenue.

Some of our services and marketing activities rely on cookies, which are placed on individual browsers when users visit websites. We use these cookies to optimize our marketing campaigns, to better understand our users’ preferences and to detect and prevent fraudulent activity. Users can block or delete cookies through their browsers or “adblocking” software or apps. The most common internet browsers allow users to modify their browser settings to prevent cookies from being accepted by their browsers, or are set to block third-party cookies by default. Increased use of methods, software or apps that block cookies, or diminished interest of users resulting from our use of such marketing activities, may adversely affect our business, financial condition and results of operations.

Our business depends on the continued growth of e-commerce and the availability and reliability of the internet in Latin America.

The market for e-commerce is developing in Latin America. Our future revenue depends substantially on Latin American consumers’ widespread acceptance and use of the internet as a way to conduct commerce. The use of and interest in the internet (particularly as a way to conduct commerce) has grown rapidly since our

 

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inception and we cannot assure you that this acceptance, interest and use will continue. For us to grow our user base successfully, more consumers must accept and use new ways of conducting business and exchanging information.

The price of personal computers and/or mobile devices and internet access may limit our potential growth in countries with low levels of internet penetration and/or high levels of poverty. In addition, the infrastructure for the internet may not be able to support continued growth in the number of internet users, their frequency of use or their bandwidth requirements.

The internet could lose its viability due to delays in telecommunications technological developments, or due to increased government regulation. If telecommunications services change or are not sufficiently available to support the internet, response times would be slower, which would adversely affect use of the internet and our service in particular. Moreover, lack of investment in mobile infrastructure in Latin America may limit the expansion of our mobile business, which is one of our key growth strategies.

Growth of e-commerce transactions in Latin America may be impeded by the lack of secure payment methods.

As secure methods of payment for e-commerce transactions have not been widely adopted in Latin America, both consumers and merchants may have a relatively low confidence level in the integrity of e-commerce transactions. Consumer confidence can be adversely affected by incidents of fraud and security breaches, including generally in the marketplace, which is beyond our control. Moreover, although we are PCI DSS certified, most of our suppliers with which we share information are not. The continued growth of e-commerce in the region will depend on consumers’ confidence in the safety of online payment methods.

Our future success depends on our ability to expand and adapt our operations in a cost-effective and timely manner.

We plan to continue to expand our operations by developing and promoting new and complementary services and increasing our penetration in our markets. Moreover, we expect our customer base to expand as income levels and access to internet and banking services, such as credit card issuances, increase in Latin America. We may not succeed at expanding our operations in a cost-effective or timely manner, and our expansion efforts may not have the same or greater overall market acceptance as our current services. Furthermore, any new service that we launch that is not favorably received by consumers could damage our reputation and diminish the value of our brands. To expand our operations we will also need to spend significant amounts on development, operations and other resources, and this may place a strain on our management, financial and operational resources. Similarly, a lack of market acceptance of these services or our inability to generate satisfactory revenue from any expanded services to offset their cost could have a material adverse effect on our business, financial condition and results of operations.

We may not be successful in implementing our growth strategies.

Our growth strategies involve expanding our service and product offerings, enhancing our service platforms and potentially pursuing strategic acquisitions.

Our success in implementing our growth strategies could be affected by:

 

    our ability to attract customers in a cost-effective manner, including in markets where we have lower brand awareness or operational history;

 

    our ability to improve the competitiveness of our product offerings including by expanding the number of suppliers and negotiating fares and rates with existing and potential suppliers;

 

    our ability to market and cross-sell our travel services and products to facilitate the expansion of our business;

 

    our ability to compete effectively with existing and new entrants to the Latin American travel industry;

 

    our ability to expand and promote our mobile platform and make it user-friendly;

 

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    our ability to build required technology;

 

    our ability to expand our businesses through strategic acquisitions and successfully integrate such acquisitions;

 

    the general condition of the global economy (particularly in Latin America) and continued growth in demand for travel services, particularly online;

 

    the growth of the internet and mobile technology as a medium for commerce in Latin America; and

 

    changes in the regulatory environments where we operate.

Many of these factors are beyond our control and we cannot assure you that we will succeed in implementing our strategies. Even if we are successful in executing our growth strategies, our different businesses may not grow at the same rate or with a uniform effect on our revenue and profitability.

Acquisitions could present risks and disrupt our ongoing business.

We may seek to undertake strategic acquisitions in the future. We have not undertaken significant acquisitions in the past, and we cannot assure you that we will be successful in identifying opportunities and consummating acquisitions on favorable terms or at all. Moreover, even if we are able to consummate a transaction, acquisitions may involve significant risks and uncertainties, including distraction of management from current operations, difficulties in integration with our existing business and technology, greater than expected liabilities and expenses, inadequate return on capital, and unidentified issues not discovered in our pre-acquisition investigations and evaluations of those strategies and acquisitions.

If we continue to grow, we may not be able to appropriately manage the increased size of our business.

We have experienced significant expansion in recent years and anticipate that further expansion will be required to address potential growth in our customer base and market opportunities. This expansion has placed, and is expected to continue to place, significant demands on management and our operational and financial resources.

We must constantly improve our software, technology infrastructure, product offering and human resources to accommodate the increased use of our website. This upgrade process is expensive, and the increasing complexity and enhancement of our website result in higher costs. Failure to upgrade our technology, features, transaction processing systems, security infrastructure, or network infrastructure to accommodate increased traffic or transaction volume or the increased complexity of our website could materially harm our business. Adverse consequences could include unanticipated system disruptions, slower response times, degradation in levels of customer support, impaired quality of users’ experiences with our services and delays in reporting accurate financial information.

Furthermore, we may need to enter into relationships with various strategic partners and other third-party service providers necessary to our business. The increased complexity of managing multiple commercial relationships could lead to execution problems that can affect current and future revenue and operating margins.

Our failure to manage growth effectively could have a material adverse effect on our business, results of operations and financial condition.

Internet regulation in the countries where we operate is scarce, and several legal issues related to the internet are uncertain.

Most of the countries where we operate do not have specific laws governing the liability of e-commerce business intermediaries, such as ourselves, for fraud, intellectual property infringement or other illegal activities committed by individual users or third-party infringing content hosted on a provider’s servers. This legal uncertainty allows for different judges or courts to decide very similar claims in different ways and establish contradictory case law.

 

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In addition, we are subject to a variety of laws, decrees and regulations across the countries where we operate that affect e-commerce, electronic or mobile payments, information requirements for internet providers, data collection, data protection, privacy, anti-money laundering, taxation (including VAT or sales tax collection obligations), obligations to provide certain information to certain authorities about transactions which are processed through our platforms or about our users and those regulations applicable to consumer protection and businesses in general. However, it is not clear how existing laws governing issues such as general commercial activities, property ownership, copyrights and other intellectual property issues, taxation (including tax laws that require us to provide certain information about transactions consummated through our platforms or about our users) and personal privacy apply to online businesses. Many of these laws were adopted before the internet was available and, as a result, do not contemplate or address the unique issues of the internet.

Moreover, due to these areas of legal uncertainty, and the increasing popularity and use of the internet and other online services, it is possible that new laws and regulations will be adopted with respect to the internet or other online services. If laws relating to these issues are enacted, they may have a material adverse effect on our business, results of operation and financial condition.

We are subject to laws relating to the collection, use, storage and transfer of personally identifiable information about our users, especially financial information. Several jurisdictions have regulations in this area, and other jurisdictions are considering imposing additional restrictions or regulations. If we violate these laws, which in many cases apply not only to third-party transactions but also to international transfers of information or transfers of information to third parties with which we have commercial relations, we could be subject to significant penalties and negative publicity, which would adversely affect us.

Because our services are accessible worldwide, other foreign jurisdictions may claim that we are required to comply with their laws. Laws regulating internet companies outside of the Latin American jurisdictions where we operate may be more restrictive to us than those in Latin America. In order to comply with these laws, we may have to change our business practices or restrict our services. We could be subject to penalties ranging from criminal prosecution, significant fines or outright bans on our services for failure to comply with foreign laws.

We process, store and use personal information, card payment information and other consumer data, which subjects us to risks stemming from possible failure to comply with governmental regulation and other legal obligations.

We acquire personal or confidential information from users of our website and mobile applications. There are numerous laws regarding privacy and the storing, sharing, use, processing, transfer, disclosure and protection of personal information, card payment information and other consumer data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection. It is possible, however, that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or the practices of the company. Any failure or perceived failure by us, or our service providers, to comply with the privacy policies, privacy-related obligations to users or other third parties, or privacy related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information, payment card information or other consumer data, may result in governmental enforcement actions, litigation or public statements against the company by consumer advocacy groups or others and could cause our customers and members to lose trust in the company, as well as subject us to bank fines, penalties or increased transaction costs, all of which could have an adverse effect on our business.

The regulatory framework for privacy issues is currently in flux and is likely to remain so for the foreseeable future. Practices regarding the collection, use, storage, transmission and security of personal information by companies operating over the internet have recently come under increased public scrutiny. Countries in Latin America are increasingly implementing new privacy regulations, resulting in additional compliance burdens and uncertainty as to how some of these laws will be interpreted.

 

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Application of existing tax laws or regulations are subject to interpretation by taxing authorities.

The application of income and non-income tax laws and regulations to our products and services is subject to interpretation by the applicable taxing authorities across the multiple jurisdictions in which we operate our business. For example, in Brazil we are subject to corporate income tax (IRPJ), social contribution on net profits (CSLL), social contribution on total revenue (PIS and COFINS), withholding taxes, to a municipal tax on services (ISS). In Argentina, we are subject to income tax, value added tax, and turnover tax. In both countries, we are subject to transfer pricing rules applicable to cross-border operations with related parties or parties in tax havens or subject to privileged fiscal regimes. These taxing authorities may become more aggressive in their interpretation and/or enforcement of such laws and regulations over time, as governments are increasingly focused on ways to increase revenue. This may contribute to an increase in audit activity and harsher stances by tax authorities. As such, additional taxes or other assessments may be in excess of our current tax reserves or may require us to modify our business practices to reduce our exposure to additional taxes going forward, any of which could have a material adverse effect on our business, financial condition and results of operations.

While we believe we currently comply in all material respects with applicable tax laws and regulations in the jurisdictions we operate, tax authorities may determine that we owe additional taxes. Moreover, we may have historical tax contingencies across multiple jurisdictions, and while we have made provisions for those contingencies which we considered probable, the amount of total contingencies may exceed our provisions. We estimate that we have approximately $33 million of unasserted possible losses, including related to taxes, for which we have not recorded provisions. In accordance with U.S. GAAP, we record provisions for contingencies based on probable loss or when otherwise required under accounting rules, but we do not record provisions for possible and remote losses.

Significant judgment and estimation is required in determining our tax liabilities. In the ordinary course of our business, there are transactions and calculations, including intercompany transactions and cross-jurisdictional transfer pricing, for which the ultimate tax determination may be uncertain or otherwise subject to interpretation. Tax authorities may disagree with our intercompany charges, including the amount of or basis for such charges, cross-jurisdictional transfer pricing or other matters, and assess additional taxes. Although we believe our tax estimates are reasonable, the final determination of tax audits could be materially different from our historical income tax provisions and accruals, in which case we may be subject to additional tax liabilities, possibly including interest and penalties, which could have a material adverse effect on our cash flows and results of operations. Moreover, we have in the past and may in the future be required in certain jurisdictions to pay any such tax assessments prior to contesting their validity, which payments may be substantial.

Amendment to existing tax laws or regulations or enactment of new unfavorable tax laws or regulations could adversely affect our business and results of operations.

Many of the underlying laws or regulations imposing taxes and other obligations were established before the growth of the internet and e-commerce. If the tax or other laws or regulations were amended, or if new unfavorable laws or regulations were enacted, our tax payments or other obligations could increase, prospectively or retrospectively, subject us to interest and penalties, decrease the demand for our products and services if we pass on such costs to our customers, result in increased costs to update or expand our technical or administrative infrastructure or effectively limit the scope of our business activities if we decided not to conduct business in particular jurisdictions. As a result, these changes could have an adverse effect on our business, financial condition or results of operations.

Governments could adopt tax laws that increase our tax rate or tax liabilities or affect the carrying value of deferred tax assets or liabilities, including the termination of tax-free incentives or termination of treaties for the avoidance of double taxation. Any changes to tax laws could impact the tax treatment of our earnings and adversely affect our profitability. Our effective tax rate in the future could also be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, or changes in the valuation of deferred tax assets and liabilities. Moreover, our results of operations and financial condition may be affected if certain beneficial tax incentives are not retained or renewed.

 

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We are subject to anti-corruption and economic sanctions laws and regulations in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act and regulations administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control. Failure to comply with these laws and regulations could negatively impact our business, our results of operations, and our financial condition.

We are subject to a number of anti-corruption and economic sanctions laws and regulations, including the U.S. Foreign Corrupt Practices Act (“FCPA”) and regulations administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). Failure to comply with these laws and regulations could negatively impact our business, our results of operations, and our financial condition.

The FCPA and similar anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or improperly providing anything of value to foreign officials, directly or indirectly, for the purpose of obtaining or keeping business and/or other benefits. The FCPA also requires maintenance of adequate record-keeping and internal accounting practices to accurately reflect transactions. Under the FCPA, companies operating in the United States may be held liable for actions taken by their strategic or local partners or representatives. Other jurisdictions in which we operate have adopted similar anti-corruption, anti-bribery and anti-kickback laws to which we are subject.

Economic sanctions and embargo laws and regulations, such as those administered and enforced by OFAC, vary in their application, as they do not all apply to the same covered persons or proscribe the same activities, and such sanctions and embargo laws and regulations may be amended or strengthened over time. Although we believe that we are in compliance with all applicable sanctions and embargo laws and regulations, and intend to maintain such compliance, there can be no assurance that we will be in compliance in the future, particularly as the scope of certain laws may be unclear and may be subject to changing interpretations.

Civil and criminal penalties may be imposed for violations of these laws. We operate in some countries which are viewed as high risk for corruption and/or economic sanctions issues. Despite our ongoing efforts to ensure compliance with the FCPA and similar laws, and economic sanctions laws and regulations, there can be no assurance that our directors, officers, employees, agents, and third-party intermediaries will comply with those laws and our policies, and we may be ultimately held responsible for any such non-compliance. If we or our directors or officers violate such laws or other similar laws governing the conduct of our business (including local laws), we or our directors or officers may be subject to criminal and civil penalties or other remedial measures, which could harm our reputation and have a material adverse impact on our business, financial condition, and results of operations. Any investigation of any actual or alleged violations of such laws could also harm our reputation or have an adverse impact on our business, financial condition, and results of operations.

We are, and may be in the future, involved in various legal proceedings, the outcomes of which could adversely affect our business and results of operations.

We are, and may be in the future, involved in various legal proceedings relating to allegations of our failure to comply with consumer protection, labor, tax or antitrust regulations, that could involve claims or sanctions for substantial amounts of money or for other relief or that might necessitate changes to our business or operations.

Our websites contain information about hotels, flights, popular vacation destinations and other travel-related topics. It is possible that if any information, accessible on our websites, contains errors or false or misleading information, third parties could take action against us for losses incurred in connection with the use of such information. In addition, because consumer protection laws in many of our markets provide for joint liability, customers may bring claims against us for a failure or deficiencies in the provision of a travel product or service by one of our suppliers that is outside of our control.

The defense of any of these actions is, and may continue to be, both time-consuming and expensive. We cannot assure you that we will prevail in these legal proceedings or in any future legal proceedings and if such

 

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disputes were to result in an unfavorable outcome, it could result in reputational damage and have a material adverse effect on our business, financial condition and results of operations. For a discussion of certain key legal proceedings relating to us, see “Business—Legal and Regulatory—Legal Proceedings.”

We may not be able to adequately protect and enforce our intellectual property rights; and we could potentially face claims alleging that our technologies infringe the property rights of others.

Our websites and mobile applications rely on content, brands and technology. We establish and protect our intellectual property by relying on a combination of trademark and domain name registration in accordance with laws in Latin America, confidentiality agreements, and internal policies and procedures. Even with these precautions, however, it may be possible for another party to copy or otherwise obtain and use our intellectual property without our authorization or to develop similar intellectual property independently. Effective trademark protection may not be available in every jurisdiction in which our services are made available, and policing unauthorized use of our intellectual property is difficult and expensive. We cannot be sure that the steps we have taken will prevent misappropriation or infringement of intellectual property. Any misappropriation or violation of our rights could have a material adverse effect on our business. Furthermore, we may need to go to court or other tribunals to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. These proceedings might result in substantial costs and diversion of resources and management attention.

We currently license from third parties some of the technologies, trademarks and content incorporated into our websites. As we continue to introduce new services that incorporate new technologies, third parties’ trademarks and content, we may be required to license additional technologies, third parties’ trademarks and content. We cannot be sure that such technologies and content licenses will be available on commercially reasonable terms, if at all.

Third parties may assert that our services, products and technology, including software and processes, violate their intellectual property rights. As competition in our industry increases and the functionality of technology offerings further overlaps, such claims and counterclaims could increase. We cannot assure you that we do not or will not inadvertently infringe on the intellectual property rights of third parties. Any intellectual property claim against us, regardless of its merit, could have an adverse effect on our business, financial condition and results of operations and could be expensive and time consuming to defend. Our failure to prevail in such matters could result in loss of intellectual property rights, judgments awarding substantial damages and injunctive or other equitable relief against us, or require us to delay or cease offering services or reduce features in our services.

Increased labor costs, compliance with labor laws and regulations and failure to maintain good relations with labor unions may adversely affect our results of operations.

We are required to comply with extensive labor regulations in each of the countries in which we have employees, including with respect to wages, social security benefits and termination payments. If we fail to comply with these regulations we may face labor claims and government fines.

In the past, governments from certain countries in which we operate, including Argentina, have adopted laws, regulations and other measures requiring companies in the private sector to increase wages and provide specified benefits to employees. We cannot assure you that these governments will not do so again in the future.

In addition, some of our employees in Argentina, Brazil and certain other countries are currently represented by labor unions. We may face pressure from our labor unions or otherwise to increase salaries. In Argentina, for example, employers in both the public and private sectors have historically experienced, and are currently experiencing, significant pressure from unions and their employees to further increase salaries due to the devaluation of the peso and high inflation. Recently, the INDEC published data regarding the evolution of

 

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salaries in the private and public sectors in Argentina, which reflects approximately 32.9% and 32.6% salary increase in the private and public sectors, respectively, for the period from November 2015 through December 2016. Due to high levels of inflation and full employment in the tech industry, we expect to continue to raise salaries. If future salary increases in the Argentine peso or the currencies of other countries in which we have employees exceed the pace of the devaluation of those currencies, such salary increases could adversely affect our business, results of operations and financial condition.

Moreover, while we have enjoyed satisfactory relationships with labor unions that represent our employees, labor-related disputes may still arise. Labor disputes that result in strikes or other disruptions could adversely affect our business, financial condition and result of operations.

A failure to comply with current laws, rules and regulations or changes to such laws, rules and regulations and other legal uncertainties may adversely affect our business, results of operations or business growth.

We have been subject, and we will likely be subject in the future, to inquiries from time to time from regulatory bodies concerning compliance with consumer protection, tax, labor, antitrust and travel industry-specific laws and regulations.

Such inquiries include investigations and legal proceedings relating to the travel industry and, in particular, parity provisions in contracts between hotels and travel companies, including us. A Brazilian hotel sector association (Forum de Operadores Hoteleiros do Brasil) filed a complaint with the Brazilian Administrative Council for Economic Defense (“CADE”) against us, Booking.com, and Expedia, in July 2016 with respect to parity provisions in contracts between hotels and travel companies. In September 2016, we submitted our response to the complaint to CADE. However, this administrative inquiry before CADE is still ongoing. See “Business—Legal and Regulatory—Legal Proceedings” for more information. We are unable at this time to predict the timing or outcome of these various investigations and lawsuits, including the CADE proceedings discussed above, or similar future investigations or lawsuits, and their impact, if any, on our business and results of operations. Parity provisions are significant to our business model, and their removal or modification may adversely affect our business, financial condition and results of operations.

The failure of our businesses to comply with these laws and regulations could result in fines and/or proceedings against us by governmental agencies and/or consumers, which if material, could adversely affect our business, financial condition and results of operations. Further, if such laws and regulations are not enforced equally against other competitors in a particular market, our compliance with such laws may put us a competitive disadvantage vis-à-vis competitors which do not comply with such requirements.

Complaints from customers or negative publicity about our services can diminish consumer confidence and adversely affect our business.

Because volume and growth in the number of new customers are key drivers of our revenue and profitability, customer complaints or negative publicity about our customer service could severely diminish consumer confidence in and use of our services. Measures we sometimes take to combat risks of fraud and breaches of privacy and security can damage relations with our customers. To maintain good customer relations, we need prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense and investment in developing programs and technology infrastructure to help customer service representatives carry out their functions. These expenses, if not managed properly, could significantly impact our profitability. Failure to manage or train our customer service representatives properly could compromise our ability to handle customer complaints effectively. If we do not handle customer complaints effectively, our reputation and brand may suffer and we may lose our customers’ confidence.

Consumer adoption and use of mobile devices creates new challenges.

Widespread adoption of mobile devices, coupled with the web browsing functionality and development of apps available on these devices, is driving substantial online traffic and commerce to mobile platforms. We have

 

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experienced a significant shift of business to mobile platforms and our suppliers are also seeing a rapid shift of traffic to mobile platforms. Many of our competitors and new market entrants are offering mobile apps for travel products and other functionality, including proprietary last-minute discounts for accommodation reservations. Advertising and distribution opportunities may be more limited on mobile devices given their smaller screen sizes. The average price of travel products purchased in mobile transactions may be less than a typical desktop transaction due to different consumer purchasing patterns. Further, given the device sizes and technical limitations of tablets and smartphones, mobile consumers may not be willing to download multiple apps from multiple companies providing a similar service and instead prefer to use one or a limited number of apps for their mobile travel activity. As a result, the consumer experience with mobile apps as well as brand recognition and loyalty are likely to become increasingly important. Our mobile offerings drive a material and increasing share of our business. We believe that mobile bookings present an opportunity for growth and are necessary to maintain and grow our business as consumers increasingly turn to mobile devices instead of a desktop computer. As a result, it is increasingly important for us to develop and maintain effective mobile apps and websites optimized for mobile devices to provide consumers with an appealing, easy-to-use mobile experience. If we are unable to continue to innovate rapidly and create new, user-friendly and differentiated mobile offerings and advertise and distribute on these platforms efficiently and effectively, or if our mobile offerings are not used by consumers, we could lose considerable market share to existing competitors or new entrants and our business, financial condition and results of operations could be adversely affected.

Moreover, we are dependent on the compatibility of our app with popular mobile operating systems that we do not control, such as Android and iOS, and any changes in such systems that degrade our products’ functionality or give preferential treatment to competitive products could adversely affect the usage of our app on mobile devices. Additionally, in order to deliver high quality mobile products, it is important that our products work well with a range of mobile technologies, systems, networks, and standards that we do not control. We may not be successful in developing relationships with key participants in the mobile industry or in developing products that operate effectively with these technologies, systems, networks, or standards. In the event that it is more difficult for our users to access and use our app on their mobile devices, or if our users choose not to access or use our app on their mobile devices or use mobile products that do not offer access to our app, our user growth and user engagement could be harmed.

We rely exclusively on Expedia for the hotel and other lodging products that we offer for all countries outside Latin America.

The hotel and other lodging products that we offer through our platform for all the countries outside Latin America are provided to us exclusively by affiliates of Expedia pursuant to the Expedia Outsourcing Agreement. In addition, Expedia is the preferred provider to us of hotel and other lodging products in Latin America. For more information, see “Business—Material Agreements.”

If Expedia’s affiliates cease to provide us with their hotel and other lodging products, we may be unable to offer these products to our users for some time and it might be difficult for us to replace this supply in the short term, which would negatively affect our business, financial condition and results of operations. The Expedia Outsourcing Agreement may be terminated by Expedia, and we may be required to pay a $125.0 million termination payment, if we do not meet certain minimum booking levels or if the termination by Expedia is for our material breach of certain terms under the Expedia Outsourcing Agreement or our Shareholders Agreement. In addition, Expedia may unilaterally terminate the Expedia Outsourcing Agreement in the event of a change of control of our Company.

Moreover, if the hotel and other lodging products provided by Expedia were to suffer a deterioration in scale or quality, the products and services that we offer to our users would be adversely affected. The Expedia Outsourcing Agreement may be terminated by us unilaterally beginning from March 6, 2022 upon payment of a $125.0 million termination payment to Expedia. Consequently, if a deterioration in the scale or quality of the products and services provided exclusively to us by affiliates of Expedia were to occur, it could be difficult for us to terminate the Expedia Outsourcing Agreement.

 

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We may experience constraints in our liquidity and may be unable to access capital when necessary or desirable, either of which could adversely affect our financial condition.

Although we believe we have a sufficient level of cash and cash equivalents to cover our working capital needs in the ordinary course of business, we may, from time to time, explore additional financing sources and means to improve our liquidity and lower our cost of capital, which could include equity, equity-linked and debt financing and factoring activities. In addition, from time to time, we review acquisition and investment opportunities to further implement our business strategy and may fund these investments with bank financing, the issuance of debt or equity or a combination thereof.

The availability of financing depends in significant measure on capital markets and liquidity factors over which we exert no control. In light of periodic uncertainty in the capital and credit markets, we can provide no assurance that sufficient financing will be available on desirable or even any terms to improve our liquidity, fund investments, acquisitions or extraordinary actions or that our counterparties in any such financings would honor their contractual commitments, which in turn could negatively affect our business, results of operations and financial condition.

Our business experiences seasonal fluctuations and quarter-to-quarter comparisons of our results may not be meaningful.

Our business experiences fluctuations, reflecting seasonal variations in demand for travel services. For example, bookings for vacation and leisure travel are generally higher during the fourth quarter, although we have historically recognized more revenue associated with those bookings in the first quarter of each year. As a result, quarter-to-quarter comparisons of our results may not be meaningful. Moreover, seasonal fluctuations in our results of operations could result in declines in our share price that are not related to the overall performance and prospects of our business.

The use of derivative financial instruments may adversely affect our results of operations, particularly in a volatile and uncertain market.

From time to time, we enter into derivative transactions to manage our risks associated with currency exchange rates and interest rates. Significant changes may occur in our portfolio of derivative instruments due to increasing volatility and the fluctuation of the currencies of certain countries where we operate, including Brazil and Argentina, against the dollar and volatility in the relevant interest rates, and we may incur net losses from our derivative financial instruments. The fair value of the derivative instruments fluctuates over time as a result of the effects of future interest rates and exchange rates. These values must be analyzed in connection with the underlying transactions and as a part of our total average exposure to interest rate and exchange rate fluctuations. It is difficult to predict the magnitude of the risk resulting from derivative instruments because the appreciation is imprecise and variable. We may be adversely affected by our derivative financial positions.

Risks Related to Latin America

Latin American countries are subject to political and social instability.

Political and social developments in Latin America, including government deadlock, instability, civil strife, terrorism, high levels of crime, expropriations and other risks of doing business in Latin America could impact our business, financial condition and results of operations.

For example, recently in Brazil as a result of the ongoing Lava Jato investigation, a number of senior politicians have resigned or been arrested and other senior elected officials and other public officials are being investigated for allegations of unethical and illegal conduct. On August 31, 2016, the Brazilian Senate impeached President Rousseff for violations of fiscal responsibility laws and the then-Vice-President Temer assumed office to complete the remainder of the presidential mandate. We cannot predict the outcome of recent political uncertainty in Brazil and its future effects on the Brazilian economy.

 

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In Argentina, during 2001 and 2002, the country experienced social and political turmoil, including the resignation of President De la Rúa, riots, looting, protests, strikes and street demonstrations. Also, in the past decade, the prior Argentine administration nationalized or announced plans to nationalize certain industries and expropriate private sector companies and property. In December 2008, the Argentine government transferred approximately AR$94.4 billion ($29.3 billion) in assets held by the country’s private Administradoras de Fondos de Jubilaciones y Pensiones (pension fund management companies, or “AFJPs”) to the government-run social security agency (“ANSES”). AFJPs were the largest participants in the country’s local capital market. With the nationalization of their assets, the local capital market decreased in size and became substantially concentrated. In addition, the Argentine government became a significant shareholder in many of the country’s public companies, including YPF S.A., the main Argentine oil and gas company, in which the majority of the capital stock was expropriated from the Spanish company Repsol, S.A. in 2012.

Although political and social conditions in one country may differ significantly from another country, events in any of our key markets could adversely affect our business, financial conditions or results of operations.

Latin American countries have experienced periods of adverse macroeconomic conditions.

Our business is dependent upon economic conditions prevalent in Latin America. Latin American countries have historically experienced economic instability, including uneven periods of economic growth as well as significant downturns. As a consequence of economic conditions in global markets and lower commodity prices and demand for commodities, many of the economies of Latin American countries have recently slowed their rates of growth, and some have entered recessions.

For example, in Brazil real GDP shrank by 3.8% in 2015 and 3.6% in 2016. In addition, the credit rating of the Brazilian federal government was downgraded in 2015 and 2016 by all major credit rating agencies and is no longer investment grade.

Argentina during 2001 and 2002 underwent a period of severe political, economic and social crisis with real GDP contracting 10.9% in 2002. Among other consequences, the crisis resulted in the Argentine government defaulting on its foreign debt obligations, a significant devaluation of the Argentine peso, the introduction of emergency measures and numerous changes in regulations and economic policies, which in turn caused numerous Argentine private sector companies to default on their outstanding debt. More recently, according to INDEC, Argentina’s real GDP decreased by 2.3% in 2016, after growing 2.4% in 2015.

Since our business is dependent on discretionary consumer spending, which is influenced by general economic conditions, any prolonged economic downturn in any of our key markets could have adverse effects on our business, financial condition and results of operations.

Latin American governments have exercised and continue to exercise significant influence over their economies.

Governments in Latin America frequently intervene in the economies of their respective countries and occasionally make significant changes in policy and regulations. Governmental actions have often involved, among other measures, nationalizations and expropriations, price controls, currency devaluations, mandatory increases on wages and employee benefits, capital controls and limits on imports. Our business, financial condition and results of operations may be adversely affected by changes in government policies or regulations, including such factors as exchange rates and exchange control policies; inflation control policies; price control policies; consumer protection policies; import duties and restrictions; liquidity of domestic capital and lending markets; electricity rationing; tax policies, including tax increases and retroactive tax claims; and other political, diplomatic, social and economic developments in or affecting the countries where we operate.

In the future, the level of intervention by Latin American governments may continue or increase. We cannot assure you that these or other measures will not have a material adverse effect on the economy of each respective country and, consequently, will not adversely affect our business, financial condition and results of operations.

 

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Inflation, and government measures to curb inflation, may adversely affect Latin American economies.

Many of the countries in which we operate have experienced, or are currently experiencing, high rates of inflation.

For example, the inflation rate in Brazil, as reflected by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or “IPCA”), published by the Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, or “IBGE”), was 6.41% in 2014, 10.67% in 2015 and 6.29% in 2016.

In Argentina, inflation has materially undermined the economy and the government’s ability to foster conditions that permit stable growth. The Consumer Price Index (Índice de Precios al Consumidor de la Ciudad de Buenos Aires or “IPCBA”) measured by the City of Buenos Aires (national statistical data was not available in Argentina from December 2015 to June 2016) showed an increase 26.9% in 2015 and 41% in 2016. According to measurements from INDEC of the national consumer price index, inflation for the first nine months of 2015 was 10.7%, for the period from May to December 2016 was 15.8%, and for January, February and March 2017 was 1.3%, 2.5% and 2.4%, respectively. Moreover, from December 2015 to January 2016, the new administration declared the national statistics agency, i.e., the INDEC, in state of administrative emergency and announced the implementation of certain methodological reforms and adjustment of certain macroeconomic statistics on the basis of these reforms. Despite these reforms that have been approved by the IMF, there remains uncertainty as to whether official data and measurement procedures sufficiently reflect inflation in the country, and what effect these reforms will have on the Argentine economy.

The measures taken by the governments of these countries to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting the availability of credit and retarding economic growth. Inflation, measures to combat inflation and public speculation about possible additional actions have contributed materially to economic uncertainty in many of these countries.

Inflation is also likely to increase some of our costs and expenses, including labor costs, which we may not be able to fully pass on to our customers, which could adversely affect our business, financial condition and results of operations.

Exchange rate fluctuations against the dollar in the countries in which we operate could negatively affect our results of operations.

Local currencies used in the conduct of our business are subject to depreciation and volatility. The currencies of many countries in Latin America have experienced significant volatility in the past, particularly against the dollar.

For example, the Brazilian real has historically experienced frequent, sometimes significant, fluctuations relative to the dollar. The real depreciated 47% in 2015 and appreciated 16.5% in 2016, based on official exchange rates as reported by the Brazilian Central Bank. In addition, the Argentine peso has also suffered significant devaluations against the dollar. The Argentine peso depreciated 52% against the dollar in 2015, primarily after the lifting of certain foreign exchange restrictions in the month of December, and in 2016 the peso depreciated 20% against the dollar.

We are subject to foreign currency exchange controls in certain countries in which we operate.

Certain Latin American economies have experienced shortages in foreign currency reserves and their respective governments have adopted restrictions on the ability to transfer funds out of the country and convert local currencies into dollars.

For example, Brazilian law provides that whenever there is a serious imbalance in Brazil’s balance of payments or reason to foresee a serious imbalance, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil.

 

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Argentina in 2001 and 2002 imposed exchange controls and transfer restrictions substantially limiting the ability of companies to make payments abroad. Since the last quarter of 2011, the Argentine government increased controls on the sale of foreign currency and the acquisition of foreign assets by local residents, limiting the possibility of transferring funds abroad. In December 2015, the new administration lifted several exchange control restrictions, and in August 2016, the Argentine Central Bank issued new regulations which repealed most of the restrictions for the purchase of foreign currency and the inflow and outflow of funds from Argentina, providing greater flexibility and access to the Argentine official foreign exchange market (the “MULC” for its acronym in Spanish or the “FX Market”).

We cannot assure you that foreign exchange controls in Brazil, Argentina or any other country where we operate, may not reemerge or worsen in the future to prevent capital flight, counter a significant depreciation of the Brazilian real, Argentine peso or other currency, or address other unforeseen circumstances. Additional controls could have a negative effect on the ability of our operating entities in the affected country to access the international credit or capital markets.

Any shortages or restrictions on the transfer of funds from abroad may impede our ability to convert these currencies into dollars and to transfer funds, including for the payment of dividends or debt. Moreover, such restrictions limit our ability to use funds for operating purposes in other countries. Consequently, if we are prohibited from transferring funds out of the countries in which we operate, our business, financial condition and results of operations could be adversely affected. For a discussion of certain foreign exchange regulations applicable to us, see “Exchange Rates.”

Developments in other markets may affect Latin America.

The market value of companies like us may be, to varying degrees, affected by economic and market conditions in other global markets. Various Latin American economies have been adversely impacted by the political and economic events that occurred in several emerging economies in recent times, including Mexico in 1994, the collapse of several Asian economies between 1997 and 1998, the economic crisis in Russia in 1998, the Brazilian devaluations in January of 1999 and 2002 and the Argentine crisis of 2001 and 2012. In addition, Latin American economies have been adversely affected by events in developed countries, such as the 2008 and 2009 global financial crisis that arose in the United States.

As of the date of this prospectus, recent global developments have occurred in the world which could impact the economies of the Latin American countries in which we operate and consequently have an adverse effect on our business, financial condition and the results of operations, such as any new restrictions on travel, immigration or trade.

Developments of a similar magnitude to the international markets in the future can be expected to adversely affect the economies of Latin American countries and, therefore, us.

Risks Related to this Offering and our Ordinary Shares

There has been no prior market for our ordinary shares and an active trading market for our ordinary shares may not develop.

Prior to this offering, there has been no public market for our ordinary shares. Although we anticipate that our ordinary shares will be approved for listing on the             , we cannot assure you that an active public market will develop or be sustained after this offering or that investors will be able to sell the ordinary shares should they desire to do so. We and the selling shareholders will negotiate with the representatives of the underwriters to determine the initial public offering price, and it may bear no relationship to the price at which the ordinary shares will trade upon completion of this offering.

 

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The price of our ordinary shares may fluctuate significantly and your investment may decline in value.

The price of our ordinary shares may fluctuate significantly in response to factors, many of which are beyond our control, including those described above under “—Risks Related to our Business” and “—Risks Related to Latin America.” The stock markets in general, and the shares of emerging market and technology companies in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the companies involved. We cannot assure you that any trading price or valuation will be sustained. These factors may materially and adversely affect the market price of our ordinary shares, which may limit or prevent investors from readily selling our ordinary shares and may otherwise affect liquidity, regardless of our operating performance. Market fluctuations, as well as general political and economic conditions in the markets in which we operate, such as recession or currency exchange rate fluctuations, may also adversely affect the market price of our ordinary shares. Following periods of volatility in the market price of a company’s securities, that company may often be subject to securities class-action litigation. This kind of litigation may result in substantial costs and a diversion of management’s attention and resources, which would have a material adverse effect on our business, financial condition and results of operation.

Future sales of our ordinary shares by significant shareholders, or the perception in the public market that these sales may occur, could cause our stock price to decline.

If our significant shareholders sell, or indicate an intent to sell, substantial amounts of our ordinary shares in the public market, after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the market price of our ordinary shares could decline significantly and could decline below the initial public offering price. We cannot predict the effect, if any, that public sales of these ordinary shares or the availability of these ordinary shares for sale will have on the market price of our ordinary shares. After giving effect to this offering we will have              ordinary shares outstanding.

Our executive officers, directors and substantially all of our existing shareholders have executed lock-up agreements preventing them from selling any ordinary shares held by them prior to this offering (other than ordinary shares to be sold in the offering by the selling shareholders) for a period of 180 days from the date of this prospectus, subject to certain limited exceptions and extensions described under the section titled “Underwriting.” However, Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., in their sole discretion, may permit our executive officers, directors and shareholders to sell shares prior to the expiration of these lock-up agreements.

The ordinary shares offered in this offering will be freely tradable without restriction under the Securities Act, except for any of our ordinary shares held by our “affiliates”, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold unless the sale is registered under the Securities Act, other than if an exemption from registration is available. See “Shares Eligible for Future Sale” for a more detailed description of the restrictions on selling our ordinary shares after this offering. Certain of our shareholders have demand and/or piggyback registrations rights which may enable them to sell some or all of their ordinary shares in a public offering in the United States registered under the Securities Act. For more information, see “Principal and Selling Shareholders.”

If our significant shareholders sell substantial amounts of our ordinary shares in the public market, or if the public perceives that such sales could occur, this could significantly harm the market price of our ordinary shares, even if there is no relationship between such sales and the performance of our business.

The strategic interests of our significant shareholders may, from time to time, differ from, and conflict with, our interests and the interests of our other shareholders.

Following this offering, affiliates of Tiger Global will continue to hold     % of our outstanding ordinary shares (assuming the underwriters do not exercise their over-allotment option). If affiliates of Tiger Global and/or other investors acquire or continue to own and control, directly or indirectly, a substantial portion of our voting

 

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share capital, even if their respective interests represent less than a majority of our total voting share capital, such shareholders may be able to exert influence over decisions at both the shareholder and board level of our Company. For more information, see “Principal and Selling Shareholders.”

The strategic interests of Tiger Global and the strategic interests of other significant shareholders, including Expedia, may differ from, and conflict with, our interests and the interests of our other shareholders in material respects. Our amended and restated memorandum and articles of association will provide that certain of our shareholders, including Tiger Global and Expedia and any directors affiliated with them who are not employed by us, will not have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate.

For example, Tiger Global is in the business of making investments in companies and owns and may, from time to time, acquire or sell interests in businesses that directly or indirectly compete with certain areas of our business or that are our suppliers. In addition, Tiger Global may pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us. Additionally, Expedia also competes in the global travel industry, and also acts as a supplier to us and certain of our competitors. For a further description of our relationship with Expedia, see “Business—Material Agreements,” “—Risks Related to our Business—We rely exclusively on Expedia for the hotel and other lodging products that we offer for all countries outside Latin America,” and “Description of Our Share Capital—Differences in Corporate Law—Conflict of Interest.”

We cannot assure you that the actions of Tiger Global and other significant shareholders, including Expedia, will not conflict with our interests or the interests of our other shareholders.

We have not determined any specific use for our net proceeds from this offering and we may use the proceeds in ways with which you may not agree.

The principal purposes of this offering are to increase our financial flexibility and create a public market for our ordinary shares, and we intend to use the net proceeds that we receive from this offering for general corporate purposes. We have not allocated our net proceeds from this offering to any particular purpose. Rather, our management will have considerable discretion in the application of the net proceeds that we received. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. Our net proceeds may be used for corporate purposes that do not improve our profitability or increase our share price. In addition, net proceeds we receive from this offering may be placed in investments that do not produce income or that lose value.

Facts and statistics relating to the Latin America travel and e-commerce markets may be inaccurate.

Facts and statistics in this prospectus relating to the Latin America travel and e-commerce markets are derived from various third-party sources. While we have taken reasonable care to ensure that the facts and statistics presented in this prospectus are accurately reproduced from such sources, they have not been independently verified by us. Due to possibly flawed or ineffective collection methods, the statistics in this prospectus may be inaccurate or may not be comparable to statistics produced for other markets and should not be unduly relied upon. Further, we cannot assure you that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case in the United States or elsewhere.

In addition, certain data related to the Latin American travel market includes travel within the region and inbound travel to the region from both Latin American and non-Latin American consumers. Our customer base is primarily comprised of consumers from Latin America traveling domestically within their own country of origin, to other countries in the Latin American region, and outside of Latin America. Market data related solely to the travel trends of Latin American consumers is limited. As a result, certain market data included in this prospectus may not be fully consistent with our target markets.

 

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We will be a foreign private issuer under U.S. securities regulations and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. issuer.

Upon consummation of this offering, we will report under the Exchange Act as a non-U.S. company and a “foreign private issuer,” as such term is defined under U.S. securities regulations. Because we qualify as a foreign private issuer, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (1) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified events. In addition, we will not be required to file our annual report on Form 20-F until 120 days after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers are also exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, even though we are required to furnish reports on Form 6-K disclosing whatever information we have made or are required to make public pursuant to BVI law or distribute to our shareholders and that is material to our Company, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.

We are exempt from certain corporate governance requirements of the              .

We are exempt from certain corporate governance requirements of the              , by virtue of being a foreign private issuer. The standards applicable to us are considerably different than the standards applied to U.S. domestic issuers. For instance, we are not required to:

 

    have a majority of our board of directors be independent;

 

    have a minimum of three members on our audit committee;

 

    have a compensation committee, a nominating or corporate governance committee;

 

    have regularly scheduled executive sessions with only non-management directors;

 

    have an executive session of solely independent directors each year; or

 

    adopt and disclose a code of business conduct and ethics for directors, officers and employees.

We intend to voluntarily comply with certain of the above standards. For more information, see “Management.” However, we have relied on and intend to continue to rely on some of these exemptions. As a result, you may not be provided with the benefits and protections of certain corporate governance requirements of the              .

We are an “emerging growth company” and the reduced disclosure and attestation requirements applicable to emerging growth companies could make our ordinary shares less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act for up to five fiscal years after the date of this offering. Section 404(b) of the Sarbanes-Oxley Act would otherwise require our independent registered public accounting firm to attest to and report on the effectiveness our internal control structure and procedures for financial reporting.

 

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In addition, Section 107 of the JOBS Act also provides that an EGC may take advantage of the extended transition period provided in Section 13(a) of the Exchange Act for complying with new or revised accounting standards. In other words, an EGC may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to take advantage of the benefits of this extended transition period and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. This election is irrevocable.

We will cease to be an EGC upon the earliest of: (1) the last day of the fiscal year during which we have revenue of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the date of this offering, (3) the date on which we have issued more than $1 billion in non-convertible debt during the previous three-year period, or (4) when we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act.

The requirements of being a public company may strain our resources and distract our management.

As a public company, we will be subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act applicable to a foreign private issuer and EGC. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure and internal controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In addition, sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our Company and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.

We are a “foreign private issuer,” as such term is defined under the Securities Act, and, therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act and related rules and regulations. Under the Securities Act, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on                     .

In the future, we would lose our foreign private issuer status if a majority of our shareholders, directors or management continue to be U.S. citizens or residents and we fail to meet additional requirements necessary to avoid loss of foreign private issuer status. Although we have elected to comply with certain U.S. regulatory provisions, our loss of foreign private issuer status would make such provisions mandatory. If we are not a foreign private issuer, we will be required to file periodic reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. For example, the annual report on Form 10-K requires domestic issuers to disclose executive compensation information on an individual basis with specific disclosure regarding the domestic compensation philosophy, objectives, annual total compensation (base salary, bonus and equity compensation) and potential payments in connection with change in control, retirement, death or disability, while the annual report on Form 20-F permits foreign private issuers to disclose compensation information on an aggregate basis. We will also have to mandatorily comply with U.S. federal proxy requirements, and our executive officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. We may also be required to modify certain of our policies to comply with good

 

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governance practices associated with U.S. domestic issuers. In addition, we may lose our ability to rely upon exemptions from certain corporate governance requirements on U.S. stock exchanges that are available to foreign private issuers. Such transition and modifications will involve additional costs and may divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations.

Our internal controls over financial reporting are not yet required to meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and ordinary share price.

Our internal controls over financial reporting currently do not meet all of the standards contemplated by Section 404 of the Sarbanes-Oxley Act that eventually we will be required to meet. Because currently we do not have comprehensive documentation of our internal controls and have not yet tested our internal controls in accordance with Section 404, we cannot conclude in accordance with Section 404 that we do not have a material weakness in our internal controls or a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal controls. We will be required to document, review and, if appropriate, improve our internal controls and procedures in anticipation of eventually being subject to the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal controls over financial reporting beginning with the filing of our second annual report with the SEC and, when we cease to be an EGC, an attestation report by our independent auditors evaluating these assessments.

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our consolidated financial statements. Confidence in the reliability of our consolidated financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the price of our ordinary shares.

You will experience immediate and substantial dilution in the net tangible book value of ordinary shares purchased.

The initial public offering price per ordinary share is substantially higher than the net tangible book value per ordinary share prior to this offering. Accordingly, if you purchase our ordinary shares in this offering, you will incur immediate dilution of approximately $        in the net tangible book value per ordinary share from the price you pay for our ordinary shares, representing the difference between (1) the assumed initial public offering price of $        per ordinary share (the mid-point of the estimated offering price range set forth in the front cover of this prospectus) and (2) the net tangible book value per ordinary share of $        at December 31, 2016 after giving effect to this offering. For more information, see “Dilution.”

Future issuances of our ordinary or other classes of shares may cause a dilution in your shareholding.

We may raise additional funding to meet our working capital, capital expenditure requirements for our planned long-term capital needs, or to fund future acquisitions. If such funding is raised through issuance of new equity or equity-linked securities, it may cause a dilution in the percentage ownership of our then existing shareholders.

Our memorandum and articles of association currently authorizes the issuance of up to 75,000,000 ordinary shares without the need for shareholder approval. The board may also amend the memorandum and articles of association to increase the number of shares we are authorized to issue and to create other classes of shares that

 

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may have preferential rights and rank in priority to the ordinary shares, and all such shares may subsequently be issued without the need for shareholder approval. We may issue a substantial number of additional ordinary shares, which may significantly dilute the equity interests of investors in this offering who will not have pre-emptive rights with respect to such an issuance or harm prevailing market prices for our ordinary shares.

From time to time we may grant equity-based compensation to our management and employees, which may dilute the value of your ordinary shares.

From time to time, we may grant options or other equity-based compensation to our management and employees. We have reserved 4,000,000 ordinary shares for issuance under our 2016 Stock Option Plan, of which 3,175,000 were issuable upon the exercise of outstanding options as of May 3, 2017. Furthermore, as of the date of this prospectus, restricted stock units relating to 90,626 ordinary shares were outstanding under our 2015 Stock Option Plan. For more information about our equity-based compensation, see “Management—Equity Incentive Plans.”

If our shareholders or board of directors approve the issuance of new equity incentive plans (or the issuance of additional shares under the existing equity incentive plans), the interests of other shareholders may be diluted.

If securities or industry research analysts do not publish or cease publishing research or reports about our business or if they issue unfavorable commentary or downgrade our ordinary shares, our stock price and trading volume could decline.

The trading market for our ordinary shares will rely in part on the research and reports that securities and industry research analysts publish about us, our industry and our business. We do not have any control over these analysts. Our stock price and trading volumes could decline if one or more securities or industry analysts downgrade our ordinary shares, issue unfavorable commentary about us, our industry or our business, cease to cover us or fail to regularly publish reports about us, our industry or our business.

Investors may have difficulty enforcing judgments against us, our directors and management.

We are incorporated under the laws of the BVI and many of our directors and officers reside outside the United States. Moreover, many of these persons do not have significant assets in the United States. As a result, it may be difficult or impossible to effect service of process within the United States upon these persons, or to recover against us or them on judgments of U.S. courts, including judgments predicated upon the civil liability provisions of the U.S. federal securities laws.

An award of punitive damages under a U.S. court judgment based upon U.S. federal securities laws is likely to be construed by BVI courts to be penal in nature and therefore unenforceable in the BVI. Further, no claim may be brought in the BVI against us or our directors and officers in the first instance for violation of U.S. federal securities laws because these laws have no extraterritorial application under BVI law and do not have force of law in the BVI. However, a BVI court may impose civil liability, including the possibility of monetary damages, on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of action under BVI law. Moreover, it is unlikely that a court in the BVI would award damages on the same basis as a foreign court if an action were brought in the BVI or that a BVI court would enforce foreign judgments if it viewed the judgment as inconsistent with BVI practice or public policy.

The courts of the BVI would not automatically enforce judgments of U.S. courts obtained in actions against us or our directors and officers, or some of the experts named herein, predicated upon the civil liability provisions of the U.S. federal securities laws, or entertain actions brought in the BVI against us or such persons predicated solely upon U.S. federal securities laws. Further, there is no treaty in effect between the United States and the BVI providing for the enforcement of judgments of U.S. courts in civil and commercial matters, and there are grounds upon which BVI courts may decline to enforce the judgments of U.S. courts. Some remedies

 

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available under the laws of U.S. jurisdictions, including remedies available under the U.S. federal securities laws, may not be allowed in the BVI courts if contrary to public policy in the BVI. Because judgments of U.S. courts are not automatically enforceable in the BVI, it may be difficult for you to recover against us or our directors and officers based upon such judgments. For more information, see “Enforceability of Civil Liabilities.” Further, under our articles of association, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited exceptions.

Certain types of class or derivative actions generally available under U.S. law may not be available as a result of the fact that we are incorporated in the BVI. As a result, the rights of shareholders may be limited.

Shareholders of BVI companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. The circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect to any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders of a company organized in the United States. Accordingly, shareholders may have fewer alternatives available to them if they believe that corporate wrongdoing has occurred. The BVI courts are also unlikely to recognize or enforce against us judgments of courts in the United States based on certain liability provisions of U.S. securities law or to impose liabilities against us, in original actions brought in the BVI, based on certain liability provisions of U.S. securities laws that are penal in nature.

You may have more difficulty protecting your interests than you would as a shareholder of a U.S. corporation.

Our corporate affairs are governed by the provisions of our memorandum and articles of association, as amended and restated from time to time, and by the provisions of applicable BVI law. The rights of shareholders and the fiduciary responsibilities of our directors and officers under BVI law are not as clearly established as they would be under statutes or judicial precedents in some jurisdictions in the United States, and some states (such as Delaware) have more fully developed and judicially interpreted bodies of corporate law.

These rights and responsibilities are to a large extent governed by the British Virgin Island Business Companies Act, 2004 as amended from time to time (the “BVI Act”) and the common law of the BVI. The common law of the BVI is derived in part from judicial precedent in the BVI as well as from English common law, which has persuasive, but not binding, authority on a court in the BVI. In addition, BVI law does not make a distinction between public and private companies and some of the protections and safeguards (such as statutory pre-emption rights, save to the extent expressly provided for in the memorandum and articles of association) that investors may expect to find in relation to a public company are not provided for under BVI law.

There may be less publicly available information about us than is regularly published by or about U.S. issuers. Also, the BVI regulations governing the securities of BVI companies may not be as extensive as those in effect in the United States, and the BVI law and regulations regarding corporate governance matters may not be as protective of minority shareholders as state corporation laws in the United States. Therefore, you may have more difficulty protecting your interests in connection with actions taken by our directors and officers or our principal shareholders than you would as a shareholder of a corporation incorporated in the United States.

The laws of BVI provide limited protections for minority shareholders, so minority shareholders will not have the same options as to recourse in comparison to the United States if the shareholders are dissatisfied with the conduct of our affairs.

Under the laws of the BVI there is limited statutory protection of minority shareholders other than the provisions of the BVI Act dealing with shareholder remedies. The principal protections under statutory law are unfair prejudice relief and an action to enforce the BVI Act or the memorandum and articles of association brought by the shareholders. Shareholders are entitled to have the affairs of the company conducted in accordance with the BVI Act and the memorandum and articles of association.

 

 

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There are common law rights for the protection of shareholders that may be invoked, largely dependent on English company law, since the common law of the BVI is limited. Under the general rule pursuant to English company law known as the rule in Foss v. Harbottle, a court will generally refuse to interfere with the management of a company at the insistence of a minority of its shareholders who express dissatisfaction with the conduct of the company’s affairs by the majority or the board of directors and that the principal remedy for an aggrieved minority shareholders was presentation of a winding up petition on just and equitable grounds. The BVI Act amplifies this position by providing that a shareholder is not entitled to bring an action or intervene in proceedings in the name of or on behalf of a BVI company. Every shareholder is entitled to have the affairs of the company conducted properly according to BVI law and the company’s constituent documents. As such, if those who control the company have persistently disregarded the requirements of the BVI Act or the provisions of the company’s memorandum and articles of association, the courts will likely grant relief. Generally, the areas in which the courts will intervene are the following: (i) an act complained of which is outside the scope of the authorized business or is illegal or not capable of ratification by the majority; (ii) acts that constitute a “fraud on the minority” where the wrongdoers control the company; (iii) acts that infringe or are about to infringe on the personal rights of the shareholders, such as the right to vote; and (iv) where the company has not complied with provisions requiring approval of a majority of shareholders, which are more limited than the rights afforded to minority shareholders under the laws of states in the United States.

There are no pre-emptive rights in favor of holders of ordinary shares so you may not be able to participate in future equity offerings.

There are no pre-emptive rights applicable under our memorandum and articles of association or BVI law in favor of shareholders in respect of further issues of shares, other than Expedia’s preemptive rights pursuant to our Shareholders Agreement. See “Certain Relationships and Related Party Transactions—Shareholder Agreement—Expedia Preemptive Rights” for more information. Consequently, you will not be entitled under applicable law to participate in any such future offerings of further ordinary, preferred or other shares.

We have no current plans to pay any cash dividends on our ordinary shares.

We currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our ordinary shares are likely to be your sole source of gain for the foreseeable future. Consequently, in the foreseeable future, you will likely only experience a gain from your investment in our ordinary shares if the trading price of our ordinary shares increases.

Anti-takeover provisions in our shareholders agreement and BVI law might discourage or delay acquisition attempts for us that you might consider favorable.

Certain provisions of our shareholders agreement may discourage, delay or prevent a change in control of our Company or management that shareholders may consider favorable, including the following provisions:

 

    until three years from the date of this offering, we may not directly or indirectly issue or transfer any of our securities to certain specified entities that conduct business in the travel industry, and certain of our existing shareholders and their affiliates are also precluded from directly or indirectly transferring any of our securities to such entities, subject to limited exceptions; and

 

    Expedia has agreed not to acquire more than 35% of our ordinary shares within three years of this offering except by means of a tender offer that, if consummated, would result in Expedia being the beneficial owner of more than 75% of the voting or economic power of our outstanding shares entitled to vote in the election of the board of directors.

For more information on our shareholders agreement, see “Certain Relationships and Related Person Transactions—Shareholders Agreements.” These anti-takeover provisions and other provisions under BVI law could discourage, delay or prevent a transaction involving a change in control of our Company, including actions that our shareholders may deem advantageous, or negatively affect the trading price of our ordinary shares.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, will be approximately $        , assuming an initial offering price of $            per share, the midpoint of the price range set forth on the cover page of this prospectus.

The principal purposes of this offering are to increase our financial flexibility and create a public market for our ordinary shares. We intend to use the net proceeds that we receive from this offering for general corporate purposes.

Each $1.00 increase (decrease) in the assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by $             million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. An increase (decrease) of 1,000,000 shares in the number of shares offered by us, as set forth on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by $             million, assuming no change in the assumed initial public offering price per share and after deducting underwriting discounts and commissions.

Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of capital preservation investments, including short-term interest-bearing investment-grade securities, certificates of deposit or government securities.

We will not receive any proceeds from the sale of ordinary shares by the selling shareholders.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2016:

 

    on an actual basis; and

 

    on an as adjusted basis giving effect to the sale and issuance of              ordinary shares by us in this offering, based upon the receipt by us of the estimated net proceeds from this offering at the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

You should read this table together with the information contained in this prospectus, including “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.

 

     As of December 31, 2016  
     Actual     As Adjusted(1)  
     (Dollars in thousands)  

Cash and cash equivalents (excluding restricted cash and cash equivalents)

   $ 75,968     $               
  

 

 

   

 

 

 

Loans and other financial liabilities

     7,179    

75,000,000 shares, no par value, authorized and 58,518,679 such shares issued and outstanding, actual;              shares, no par value, authorized and             such shares issued and outstanding, as adjusted

     6    

Additional paid-in capital

     312,155    

Other reserves

     (728  

Accumulated other comprehensive income

     16,286    

Accumulated losses

     (409,982  

Total shareholder deficit

     (82,263  
  

 

 

   

 

 

 

Total capitalization

   $ (75,084   $  
  

 

 

   

 

 

 

 

(1) Each $1.00 increase (decrease) in the assumed initial offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total capitalization by approximately $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. Each increase (decrease) of 1,000,000 shares in the number of shares offered by us would increase (decrease) total capitalization by approximately $        , assuming that the initial public offering price to the public remains the same, and after deducting the underwriting discounts and commissions. The as adjusted information discussed above is illustrative only and will adjust based on the actual initial price to the public and other terms of this offering determined at pricing.

In this prospectus, the number of ordinary shares to be outstanding after this offering is based on 58,518,679 ordinary shares outstanding as of May 3, 2017, and excludes the following:

 

    90,626 ordinary shares subject to restricted stock units outstanding;

 

    3,175,000 ordinary shares issuable upon the exercise of outstanding options, with a weighted average exercise price of $26.0197 per share, subject to vesting requirements; and

 

    an additional 825,000 ordinary shares reserved for issuance under our 2016 Stock Option Plan.

For more information, see “Management—Equity Incentive Plans.”

 

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DIVIDEND POLICY

In 2016 and 2015, no dividends were declared or paid on our ordinary shares or on the common stock of our predecessor. We currently intend to retain our available funds and future earnings, if any, to finance the development and growth of our business and operations as well as expand our business and do not currently anticipate paying dividends on our ordinary shares in the near future.

The declaration, amount and payment of any future dividends will be at the sole discretion of our board of directors. Our board of directors will take into account general economic and business conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and other implications on the payment of dividends by us to our shareholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

As we are a holding company, we rely on dividends paid to us by our subsidiaries for our cash requirements, including funds to pay any dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. Our ability to pay dividends to our shareholders will depend on, among other things, the availability of dividends from our subsidiaries.

Under BVI law, our directors may authorize payment of a dividend to shareholders at such time and of such an amount as they determine if they are satisfied on reasonable grounds that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further BVI statutory restriction on the amount of funds which may be distributed by us by dividend. Pursuant to our memorandum and articles of association, all dividends unclaimed for three years after having been declared may be forfeited by a resolution of directors for the benefit of the Company.

 

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DILUTION

If you invest in our ordinary shares, your interest will be diluted to the extent of the difference between the initial public offering price per share of our ordinary shares and the net tangible book value per ordinary share after this offering. Dilution results from the fact that the per share offering price of the ordinary shares is substantially in excess of the net tangible book value per share attributable to our existing shareholders.

Our net tangible book value as of December 31, 2016 was $        , or $         per ordinary share. Net tangible book value represents the amount of total tangible assets less total liabilities, and net tangible book value per ordinary share represents net tangible book value divided by the number of ordinary shares outstanding, after giving effect to this offering. After giving effect to receipt of the net proceeds of our sale and issuance of              ordinary shares at an assumed initial offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value as of December 31, 2016 would have been approximately $        , or $        per ordinary share. This represents an immediate increase in net tangible book value of $        per share to our existing shareholders and an immediate dilution of $        per share to investors purchasing ordinary shares in this offering.

The following table illustrates the per share dilution:

 

Assumed initial public offering price per ordinary share

      $               

Net tangible book value per ordinary share as of December 31, 2016

   $                  

Increase in net tangible book value per ordinary share attributable to existing shareholders

   $     
  

 

 

    

 

 

 

Net tangible book value per ordinary share after the offering

      $  

Dilution per share to new investors

      $  

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the as adjusted net tangible book value by $        per share and the dilution per share to new investors by $        per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions. An increase (decrease) of 1,000,000 shares in the number of shares we are offering would increase (decrease) our as adjusted net tangible book value by approximately $        million, or $        per share, and the dilution per share to investors in this offering by $        per share, assuming that the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions.

The following table summarizes, as of December 31, 2016, the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share (i) paid to us by existing shareholders and (ii) to be paid by new investors acquiring our ordinary shares in this offering at an assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Ordinary Shares Purchased     Total Consideration     Average Price
Per

Ordinary Share
 
     Number      Percent     Amount      Percent    

Existing shareholders

               $                            $               

New investors

               $               $  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100   $        100   $  

Each $1.00 increase (decrease) in the assumed initial public offering price of $        per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration

 

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paid by new investors by $        and increase (decrease) the percent of the total consideration paid by new investors by     %, assuming the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions. An increase (decrease) of 1,000,000 in the number of shares offered by us would increase (decrease) the total consideration paid by new investors by $        , assuming that the assumed initial price to the public remains the same, and after deducting the underwriting discounts and commissions.

In this prospectus, the number of ordinary shares to be outstanding after this offering is based on 58,518,679 ordinary shares outstanding as of May 3, 2017, and excludes the following:

 

    90,626 ordinary shares subject to restricted stock units outstanding;

 

    3,175,000 ordinary shares issuable upon the exercise of outstanding options, with a weighted average exercise price of $26.0197 per share, subject to vesting requirements; and

 

    an additional 825,000 ordinary shares reserved for issuance under our 2016 Stock Option Plan.

For more information, see “Management—Equity Incentive Plans.”

To the extent that any outstanding options are exercised, outstanding RSUs settle, new options or RSUs are issued under our equity incentive plans, or we issue additional shares in the future, there will be further dilution to investors participating in this offering.

 

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EXCHANGE RATES

While we maintain our books and records in dollars, our revenue and expenses are denominated primarily in the local currencies of the Latin American countries in which we operate, and as such may be affected by changes in the local exchange rates to the dollar. We have significant operations in Brazil and Argentina. The following paragraphs summarize the exchange rates and exchange controls of Brazilian reais and Argentine pesos. See “Risk Factors—Risks Related to Latin America—Exchange rate fluctuations against the dollar in the countries in which we operate could negatively affect our results of operations” and “We are subject to foreign currency exchange controls in certain countries in which we operate” for more information.

Brazil

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of Brazilian reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

The Brazilian real depreciated against the dollar from mid-2011 to early 2016. In particular, during 2015, due to the poor economic conditions in Brazil, including as a result of political instability, the Brazilian real depreciated at a rate that was much higher than in previous years. On September 24, 2015, the Brazilian real fell to its lowest level since the introduction of the currency, at R$4.1945 per $1.00. In 2015, the Brazilian real depreciated 47.0%, reaching R$3.9048 per $1.00 on December 31, 2015. In 2016, the Brazilian real fluctuated significantly, primarily as a result of Brazil’s political instability, but appreciated 16.5%, reaching R$3.2591 per $1.00 on December 31, 2016. The Brazilian Central Bank has intervened occasionally in the foreign exchange market to attempt to control instability in foreign exchange rates. We cannot predict whether the Brazilian Central Bank or the Brazilian government will continue to allow the Brazilian real to float freely or will intervene in the exchange rate market by re-implementing a currency band system or otherwise. The Brazilian real may depreciate or appreciate substantially against the dollar in the future. Furthermore, Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that the Brazilian government will not place restrictions on remittances of foreign capital abroad in the future.

The following tables set forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Brazilian reais per dollar (R$/$) and not adjusted for inflation, as reported by the Brazilian Central Bank. We cannot assure you that the Brazilian real will not depreciate or appreciate again in the future.

 

Year

   Period-end      Average(1)      Low      High  

2012

     2.0435        1.9550        1.7024        2.1121  

2013

     2.3426        2.1605        1.9528        2.4457  

2014

     2.6562        2.3547        2.1974        2.7403  

2015

     3.9048        3.3387        2.5754        4.1949  

2016

     3.2591        3.4833        3.1193        4.1558  

 

Month

   Period-end      Average(2)      Low      High  

November 2016

     3.3967        3.3420        3.2024        3.4446  

December 2016

     3.2591        3.3523        3.2391        3.4650  

January 2017

     3.1270        3.1966        3.1270        3.2729  

February 2017

     3.0993        3.1042        3.0510        3.1479  

March 2017

     3.1684        3.1279        3.0763        3.1735  

April 2017

     3.1984        3.1362        3.0923        3.1984  

 

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Source: Brazilian Central Bank

(1) Represents the average of the exchange rates on the closing of each day during the year.
(2) Represents the average of the exchange rates on the closing of each day during the month.

Argentina

From April 1, 1991 until the beginning of 2002, Law No. 23,928 (the “Convertibility Law”) established a regime under which the Argentine Central Bank was obliged to sell dollars at a fixed rate of one Argentine peso per dollar. On January 6, 2002, the Argentine Congress enacted Law No. 25,561 (as amended and supplemented, the “Public Emergency Law”), formally ending the regime of the Convertibility Law, abandoning over ten years of dollar-Argentine peso parity and eliminating the requirement that the Argentine Central Bank’s reserves in gold, foreign currency and foreign currency-denominated debt be at all times equivalent to 100% of the monetary base.

The Public Emergency Law, which has been extended on an annual basis and is in effect until December 31, 2019, has granted the Argentine government the power to set the exchange rate between the Argentine peso and foreign currencies and to issue regulations related to the foreign exchange market. Following a brief period during which the Argentine government established a temporary dual exchange rate system, pursuant to the Public Emergency Law, the Argentine peso has been allowed to float freely against other currencies since February 2002. However, the Argentine Central Bank has had the power to intervene in the exchange rate market by buying and selling foreign currency for its own account, a practice in which it has engaged on a regular basis. Since 2011, the Argentine government has increased controls on exchange rates and the transfer of funds into and out of Argentina.

With the tightening of foreign exchange controls beginning in late 2011, in particular with the introduction of measures that restricted access to foreign currency for private companies and individuals, the implied exchange rate, as reflected in the quotations for Argentine securities that trade in foreign markets, compared to the corresponding quotations in the local market, increased significantly over the official exchange rate. Most of the foreign exchange restrictions have been gradually lifted by several communications issued by the Argentine Central Bank, starting with Communication “A” 5850 issued in December 2015. On August 9, 2016 the Argentine Central Bank issued Communication “A” 6037, which substantially modified the applicable foreign exchange regulations and eliminated the set of restrictions for accessing the FX Market. Consequently, as a result of the elimination of the existing limitations on the amounts for the purchase of foreign currency without specific allocation and the elimination of prior approval requirements, the spread between the official exchange rate and the implicit exchange rate derived from securities transactions has substantially decreased.

After several years of moderate variations in the nominal exchange rate, in 2012 the Argentine peso lost approximately 14% of its value with respect to the dollar. This was followed in 2013 and 2014 by a devaluation of the Argentine peso with respect to the dollar that exceeded 30%, including a loss of approximately 23% in January 2014. In 2015, the Argentine peso lost approximately 52% of its value with respect to the dollar, including a 10% devaluation from January 1, 2015 to September 30, 2015 and a 38% devaluation during the last quarter of the year, mainly concentrated after December 16, 2015 when certain exchange controls were lifted.

 

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The following table sets forth the annual high, low, average and period-end exchange rates for the periods indicated, expressed in Argentine pesos per dollar and not adjusted for inflation. We cannot assure you that the Argentine peso will not depreciate or appreciate again in the future. The Federal Reserve Bank of New York does not report a noon buying rate.

 

Year

   Period-end      Average(1)      Low      High  

2012

     4.84        4.51        4.28        4.84  

2013

     6.14        5.37        4.84        6.14  

2014

     8.52        7.94        6.16        8.53  

2015

     9.69        9.04        8.53        9.69  

2016

     15.87        14.42        9.70        15.87  

 

Month

   Period-end      Average(2)      Low      High  

November 2016

     15.87        15.35        14.92        15.87  

December 2016

     15.89        15.84        15.50        16.03  

January 2017

     15.90        15.91        15.81        16.08  

February 2017

     15.48        15.59        15.36        15.80  

March 2017

     15.60        15.72        15.60        15.80  

April 2017

     15.60        15.55        15.40        15.70  

 

Source: Banco de la Nación Argentina selling rate

(1) Represents the average of the exchange rates on the closing of each day during the year.
(2) Represents the average of the exchange rates on the closing of each day during the month.

Exchange Controls in Argentina

The enactment of the Public Emergency Law in 2002, among other things, authorized the Argentine government to implement a foreign exchange system and to enact foreign exchange regulations. Within this context, on February 8, 2002, pursuant to Decree No. 260/2002, the Argentine government (1) created the FX Market through which all transactions involving the exchange of foreign currency must be conducted, and (2) established that all foreign exchange transactions shall be made at the freely agreed exchange rate and in compliance with the requirements and regulations of the Argentine Central Bank (the main aspects of which are described below).

On June 9, 2005, by means of Decree No. 616/2005, the Argentine government established that (1) all inflows of funds into the FX Market arising from foreign debts incurred by Argentine residents, both individuals or legal entities of the private financial and non-financial sector, excluding export-import financings, and primary issues of debt securities sold through public offering and traded in authorized markets; (2) currency remittances made by non-Argentine-residents into the domestic foreign exchange market for the following purposes: holdings of Argentine currency, purchases of any kind of financial assets or liabilities of the financial or non-financial private sector, excluding direct foreign investments and primary issues of debt securities and shares sold through public offering and traded in self-regulated markets; and investments in public sector securities purchased in secondary markets, shall meet the following requirements: (a) currency remittances into the domestic foreign currency market shall only be transferred abroad upon the lapse of 365 calendar days computed as from the date of settlement of such funds into Argentine pesos (the “Minimum Stay Period”); (b) the proceeds of the exchange of the funds so remitted shall be deposited into an account in the local banking system; (c) an amount equal to 30.0% of the relevant amount shall be deposited in a registered, non-transferable and non-interest bearing account for a period of 365 calendar days, under the conditions established in the applicable regulations; and (d) such deposit shall be made in dollars with Argentine financial institutions, it shall not accrue any interest or other profit and shall not be used as security or collateral for any kind of credit transaction.

Any breach of the provisions of Executive Decree No. 616/05 or any other foreign exchange regulation is subject to criminal sanctions.

 

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However, to date, the requirements set forth in (a), (c) and (d) above have been mitigated through resolutions issued by the Ministry of Treasury and Public Finance. On December 18, 2015, through Resolution No. 3/2015, the Ministry of Treasury and Public Finance amended Executive Decree No. 616/2005, reducing (i) the deposit percentage to zero and (ii) reducing the Minimum Stay Period from 365 to 120 calendar days. On January 5, 2017, through Resolution No. 1/2017, the Ministry of Treasury reduced the Minimum Stay Period to zero. In addition, on August 8, 2016, the Argentine Central Bank, by means of Communication “A” 6037, introduced material changes to the foreign exchange regime in force, which significantly eased access to the FX Market.

The following is a description of the main aspects of Argentine Central Bank regulations concerning inflows and outflows of funds in Argentina.

General rules of the Argentine Foreign Exchange Market

Pursuant to Decree No. 260/2002, which established the FX Market, foreign exchange transactions must be carried out at the exchange rate freely agreed upon and must be subject to the requirements and regulations established by the Argentine Central Bank.

Residents can access the FX Market for (i) inflow and outflow of foreign currency related to transactions held with non-residents; (ii) the inflow and/or payment of obligations maintained with local financial institutions or related with the issuance of debt securities in foreign currency; and (iii) for the purchase or sale of their own external assets and for transfers performed between Argentine residents.

Inflow of Capital

Foreign Financial Indebtedness

Inflow and settlement through the FX Market: Pursuant to Communication “A” 6037, foreign financial indebtedness incurred by the private non-financial sector, the financial sector and Argentine local governments are not subject to the requirement of having the proceeds from such indebtedness transferred and settled through the FX Market.

Whether funds are being entered into the FX Market or not, in transactions involving the private non-financial sector and the financial sector it is mandatory to register such debt in the Report of Issuances of Securities and Other Foreign Indebtedness of the Private Financial and Non-Financial Sector” established by Communication “A” 3602.

Moreover, there is no obligation to convert disbursements received under offshore financial indebtedness into Argentine pesos through the FX Market. As a result, funds brought into Argentina can be credited into a bank account in either Argentine pesos or foreign currency, including a foreign currency different from the one in which the funds were initially transferred (e.g., dollars to euros).

Outflow of Capital

Payment of Indebtedness, Services, Interest and Dividends Abroad

Access to the FX Market is permitted for the performance of transfers abroad for the payment of foreign financial indebtedness, services, interest, profits and dividends, acquisition of non-produced non-financial assets, and the payment of financial and commercial debts. For this purpose, an affidavit must be presented stating compliance with the “Survey of issues of securities and other external obligations of the private financial and non-financial sector” established by Communication “A” 3602 and, when applicable, with the “Direct Investment Survey” established by Communication “A” 4237 (as detailed below).

 

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Foreign financial indebtedness can also be repaid by using freely disposable funds deposited abroad. There is no limitation on prepayment of principal before the agreed maturity date. Additionally, there is no restriction on refinancing (or extending the agreed maturity of) foreign indebtedness, even if the disbursed funds were entered into the FX Market.

Survey of Issues of Securities and Other External Obligations of the Private Financial and Non-Financial Sector

Through Communication “A” 3602, the Argentine Central Bank implemented an informative regime for the registration of indebtedness and liabilities maintained by residents with non-residents at the end of each quarter. This declaration must be submitted through financial institutions, which send this information to the Argentine Central Bank for its registry.

Survey of Direct Investments

Through Communication “A” 4237, the Argentine Central Bank implemented a Direct Investment Survey System by which local companies counting with non-resident direct investors, and Argentine residents who have direct investments abroad, have to file a formal statement channeled through financial entities.

Reporting is on a semi-annual basis, but the report is only mandatory if the value of the non-resident holdings in the country, considering their participation in the value of the company’s net worth, reaches or exceeds the equivalent of $500,000. In the case where said holdings do not reach said value, reporting is optional.

Repatriations by Non-residents

Non-Argentine residents may access the FX Market to perform what are commonly known as repatriation transactions.

In order to do so, they must file an affidavit before the intervening financial entity, stating that the funds correspond to:

(1) financial indebtedness originated in foreign loans from non-residents;

(2) collection of credits under a reorganization proceeding and collection of debts under a reorganization or insolvency proceedings, to the extent that the non-resident client has been recognized as a creditor by a non-appealable decision of the competent court of such proceedings;

(3) services, royalties and other current transfers abroad;

(4) repatriations of foreign direct investments in the non-financial private sector, in companies that are not controllers of local financial entities, and/or in real estate properties, to the extent that the beneficiary from abroad is an individual or entity residing or incorporated in countries or territories considered as Collaborative for Fiscal Transparency (as determined by section 1 of Decree 589/13 and its supplementary). Argentine law regulations provide that a holding by a non-resident in equity of a local company of 10% or more (of the equity or votes) is considered a foreign direct investment. The repatriation of such investments includes: the sale of direct investment; final settlement of the investment; reduction of capital decided by the local company; and return of irrevocable contributions made by the local company;

(5) collection of services or sales of portfolio investments (and their results), provided that the beneficiary from abroad is an individual or entity that resides or has been incorporated and established in a country or territory considered as Collaborative for Fiscal Transparency. These repatriations of portfolio investments include, but are not limited to, portfolio investments in shares and stakes in local companies, investments in

 

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mutual funds and local trusts, purchase of portfolios of loans granted to residents by local banks, purchase of invoices and promissory notes for local commercial transactions, investments in local bonds issued in Argentine pesos and in foreign currency payable locally, as well as purchases of other internal credits;

(6) compensation granted by local courts in favor of non-residents; and

(7) Argentine import payments.

The transfer of funds abroad may be performed by debiting funds from accounts held in Argentine pesos or accounts denominated in foreign currency.

Formation of Foreign Assets

Argentine resident natural persons and private legal persons incorporated in Argentina and not authorized to deal in foreign exchange, certain trusts and other estates domiciled in Argentina, as well as Argentine local governments, may access the FX Market without requesting prior approval from the Argentine Central Bank under certain concepts defined as “formation of foreign assets,” with no amount limitations. Such concepts are: “direct investments by residents,” “portfolio investments abroad by residents,” “purchase of foreign currency bills,” “residents’ loans to non-argentine residents,” “residents’ travelers checks” and “purchase of foreign currency for personal holding or related to transfers between residents.”

Under the concept of “portfolio investments,” Argentine residents may transfer funds to their own accounts opened abroad, without limitations, as long as such accounts are opened in countries or territories considered as Collaborative for Fiscal Transparency and are not flagged as non-collaborative by the Financial Action Task Force. As funds transferred under this concept are considered “freely disposable funds”, they may be used abroad to cancel any type of indebtedness.

 

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SELECTED FINANCIAL DATA

The following selected historical consolidated financial data of our predecessor, Decolar.com Inc., and its consolidated subsidiaries should be read together with “Summary—Summary Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus.

We derived the selected income statement, balance sheet and cash flow data from our audited consolidated financial statements which are included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP in dollars. Our historical results do not necessarily indicate results expected for any future period.

Selected Income Statement Data

 

     Year Ended December 31,  
     2016      2015  
     (in thousands, except
per share data)
 

Revenue

     

Air

   $ 205,721      $ 219,817  

Packages, Hotels and Other Travel Products

     205,441        201,894  
  

 

 

    

 

 

 

Total revenue

     411,162        421,711  

Cost of revenue

     126,675        154,213  
  

 

 

    

 

 

 

Gross profit

     284,487        267,498  

Operating expenses

     

Selling and marketing

     121,466        170,149  

General and administrative

     64,683        78,181  

Technology and product development

     63,251        73,535  
  

 

 

    

 

 

 

Total operating expenses

     249,400        321,865  
  

 

 

    

 

 

 

Operating income / (loss)

     35,087        (54,367

Financial income

     8,327        10,797  

Financial expense

     (15,079      (23,702
  

 

 

    

 

 

 

Income / (loss) before income taxes

     28,335        (67,272

Income tax expense

     10,538        18,004  
  

 

 

    

 

 

 

Net income / (loss)

   $ 17,797      $ (85,276
  

 

 

    

 

 

 

Earnings / (loss) per share:

     

Basic

     0.30        (1.49
  

 

 

    

 

 

 

Diluted

     0.30        n/a  
  

 

 

    

 

 

 

Weighted average shares outstanding:

     

Basic

     58,519        57,078  

Diluted

     58,609        57,186  

Selected Balance Sheet Data

 

     As of December 31,  
     2016      2015  
     (in thousands)  

Cash and cash equivalents(1)

   $ 75,968      $ 102,116  

Total assets

     353,710        348,215  

Total liabilities

     435,973        431,348  

Total shareholders’ deficit attributable to Decolar.com, Inc.

     (82,263      (83,133

 

(1) Excludes restricted cash and cash equivalents. See note 3 of our audited consolidated financial statements.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the “Selected Historical Consolidated Financial Data” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in “Forward-Looking Statements” and “Risk Factors.”

Overview

We are the leading online travel company in Latin America, known by our two brands, Despegar, our global brand, and Decolar, our Brazilian brand. Approximately four million customers transacted on our web and mobile platform generating a total of $3.3 billion in gross bookings in 2016. We have a comprehensive product offering, including airline tickets, packages, hotels and other travel-related products, which enables consumers to find, compare, plan and purchase travel products easily through our marketplace. We provide our network of travel suppliers a technology platform for managing the distribution of their products and access to our users. We believe that our focus on the underpenetrated Latin American online travel market, our knowledge of the consumer and supplier landscape and our ability to manage the business successfully through economic cycles will allow us to continue our industry leadership.

The Latin American travel industry, comprised of air, hotel and a vast array of other travel-related products within Latin America and inbound to the region, reached $60.2 billion in travel bookings in 2015, and is expected to grow to $73.3 billion in 2020, according to Phocuswright. Total Latin America online travel bookings were $17.4 billion in 2015 and are expected to grow to approximately $29.5 billion by 2020, representing an estimated CAGR of 11.1%, according to Phocuswright. Penetration of online travel bookings is expected to increase from 29% in 2015 to 40% in 2020. Factors driving the growth in online travel bookings include the increase of internet penetration, further adoption of smartphones, tablets and other mobile devices and a growing middle class with greater access to banking services and credit products, together enabling a larger segment of the growing population to transact online or on mobile devices.

We organize our business into two segments: (1) Air, which consists of the sale of airline tickets, and (2) Packages, Hotels and Other Travel Products, which consists of travel packages (which can include airline tickets and hotel rooms), as well as stand-alone sales of hotel rooms (including vacation rentals), car rentals, bus tickets, cruise tickets, travel insurance and destination services.

We report our revenue on a net basis, deducting cancellations and amounts that we collect as sales taxes. We derive most of our revenue from commissions and other incentive payments paid by our suppliers and service fees paid by our customers. In our Air segment, we recognize revenue for certain up-front incentive commissions and service fees at the time of sale. In our Packages, Hotel and Other Travel Products segment, we generally recognize revenue at the time of travel, except for non-reimbursable transactions, for which we recognize revenue at the time of booking.

For the years ended December 31, 2016 and 2015:

 

    gross bookings were $3.3 billion and $3.6 billion, respectively;

 

    revenue was $411.2 million and $421.7 million, respectively;

 

    operating income / (loss) was $35.1 million and $(54.4) million, respectively; and

 

    net income / (loss) was $17.8 million and $(85.3) million, respectively.

 

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In May 2017, the stockholders of our predecessor, Decolar.com, Inc., a Delaware corporation, exchanged their shares for ordinary shares of Despegar.com, Corp., a business company incorporated in the British Virgin Islands to create a new BVI holding company. Following the exchange, our existing shareholders own shares of Despegar.com, Corp. and Decolar.com, Inc. is a subsidiary of Despegar.com, Corp. The audited consolidated financial statements as of and for the years ended December 31, 2016 and 2015 are the consolidated financial statements of Decolar.com, Inc., which is our predecessor for accounting purposes.

Key Trends and Factors Affecting Our Business

We believe that our results of operations and financial performance will be driven primarily by the following trends and factors:

 

    Growth in and Retention of our Customer Base: A key driver of our revenue will be the number of customer transactions and the growth in our customer base. We have grown our customer base from 2.7 million distinct customers booking travel with us in 2012 to 4.0 million in 2016. One important driver of growth in our customer base is consumer awareness of our brand which we foster via our online and offline marketing throughout our target markets in Latin America. We also benefit from network effects, in that a larger customer base helps us to attract additional suppliers and, in turn, a larger network of suppliers helps us to attract new customers as well as drive retention and repeat purchases. We focus on maintaining strong customer satisfaction to build long-term customer relationships. In 2016, approximately 58% of our transactions were with repeat customers who had previously purchased other travel products through our platform.

 

    Cross-Selling: Our financial results are also driven by our ability to cross-sell and increase the number of products that we are able to sell in connection with each trip, which allows us to increase our revenue from each transaction without incurring the costs of acquiring additional customers.

 

    Changes in Product Mix and New Product Offerings: In addition to the total volume of transactions, our operating results also vary depending on product mix. In particular, packages and hotels tend to have higher margins than air travel. Our Packages, Hotels and Other Travel Products segment has grown from 33% of our total number of transactions in 2012 to 41% in 2016. In addition, we continually seek to expand our product offerings, whether by adding new product categories, such as our introduction of our bus, local concierge and vacation rentals products, which may have higher or lower margins than our overall business, or by the ongoing expansion of our supplier base.

 

    Shift to Mobile Transactions: As smart phone penetration in Latin America continues to increase, Latin American consumers have begun to make greater use of mobile devices to transact online. Mobile is an increasingly important part of our business, as consumers are quickly able to access and browse our real-time travel offerings, compare prices and make purchases through their mobile devices. During 2016, mobile accounted for approximately 50% of all of our user visits, and approximately 19% of our gross bookings were completed on our mobile platform, complementing our desktop website traffic. Our strategic focus on mobile enables us to remain connected to customers and provides the opportunity for customers to access our platform after they have arrived at their destination to purchase additional products, such as rental cars, destination services and travel insurance, or make last-minute hotel or air travel bookings.

 

   

Macroeconomic and Political Environment Conditions in the Countries in which We Operate: Our customers are primarily located in Latin America, particularly in Brazil and Argentina, and to a lesser extent in Mexico. Our results of operations and financial condition are significantly influenced by political and economic developments in the countries in which our customers reside and, to a lesser extent, in the countries to which our customers may travel, and the effect that these factors may have on the availability of credit, employment rates, disposable income, average wages and demand for travel in those countries. In the mid- to long-term, we believe that macroeconomic changes will

 

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generally benefit us due to an expanding middle class, increasing disposable income, reduced unemployment and lower interest rates, among other factors.

 

    Currency Exchange Rates: We report our financial results in dollars, but most of our revenue and expenses are denominated in local currencies. Any changes in the exchange rates of any such currencies against the dollar will affect our reported financial results as translated into dollars. Furthermore, many of our customers travel internationally and any changes in the exchange rate between their home currency and the currency of their destination may influence their travel purchases.

 

    Inflation: Historically, certain countries in Latin America, such as Argentina, have experienced high rates of inflation. Changes in inflation rates can affect our pricing as well as our expenses, including employee salaries, and the inflation rates in the countries where we generate revenue in any period may be higher or lower than the inflation rates in the countries where we incur expenses. In addition, higher inflation may lead our customers to make more purchases using installments or other financing options, and such inflation may make such financing options more expensive.

 

    Below is a summary of certain macroeconomic data for Brazil and Argentina, our two largest markets, for 2016 and 2015:

 

Brazil

 
     2016     2015  

Real GDP (in billions of $)

     1,922.9       1,536.7  

GDP growth (decline)(1)

     (3.6 )%      (3.8 %) 

GDP per capita (in $)

     9,330       7,395  

Population (in millions)

     206.08 (2)      204.45  

Inflation(3)

     6.3     10.7

Exchange rate (reais per $1.00)(4)

     3.2591       3.9048  

 

(1) Source: The Brazilian Institute for Geography and Statistics (Instituto Brasileiro de Geografia e Estatística (“IBGE”)).
(2) As of July 1, 2016.
(3) Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo (“IPCA”)), published by the IBGE.
(3) Brazilian Central Bank rate as of December 31.

 

Argentina

 
     2016     2015  

Real GDP (in billions of $)

     545.1       584.7  

GDP growth (decline)(1)

     (2.3 )%      2.4

GDP per capita (in $)

     12,556       13,467  

Population (in millions)(1)

     43.6       43.1  

Inflation(2)

     41.0     26.9

Exchange rate (Argentine pesos per $1.00)(3)

     16.10       13.30  

 

(1) Source: Instituto Nacional de Estadística y Censos, (“INDEC”)
(2) As measured by the City of Buenos Aires Consumer Price Index, since national statistical data was not available in Argentina from October 2015 to April 2016. According to measurements from INDEC of the Consumer Price Index, inflation for the first nine months of 2015 was 10.7% and 16.9% for the period from May to December 2016.
(3) Banco de la Nación Argentina selling rate as of December 31.

 

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Key Business Metrics

We regularly review the following key metrics to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

 

     Year Ended December 31,         
         2016              2015          % Change  

Operational

     (in thousands)     

Number of transactions

        

By country

        

Brazil

     2,930        3,630        (19.3

Argentina

     1,800        1,790        0.6  

Other

     2,480        2,290        8.3  

Total

     7,210        7,710        (6.5

By segment

        

Air

     4,250        4,380        (3.0

Packages, Hotels and Other Travel Products

     2,960        3,330        (11.1

Total

     7,210        7,710        (6.5

Gross bookings

   $ 3,260,307      $ 3,591,885        (9.2

Financial

        

Adjusted EBITDA (unaudited)

   $ 48,585      $ (39,067      NM  

 

Note: “NM” denotes not meaningful.

Number of Transactions

The number of transactions for a period is the total number of customer orders completed on our platform in such period. We monitor the total number of transactions, as well as the number of transactions in each of our segments and the number of transactions with customers in each of Brazil, Argentina and the other countries in which we operate. The number of transactions is an important metric because it is an indicator of the level of engagement with our customers and the scale of our business from period to period but, unlike gross bookings and our financial metrics, the number of transactions is independent of the average selling price of each transaction, which can be significantly influenced by fluctuations in currency exchange rates.

Gross Bookings

Gross bookings is the aggregate purchase price of all travel products booked by our customers through our platform during a given period. Much of the compensation that we receive from our suppliers is calculated based on bookings from a particular supplier and, as a result, we monitor our gross bookings as an important indicator of our ability to generate revenue.

Adjusted EBITDA

We define Adjusted EBITDA as net income / (loss) exclusive of financial income / (expense), income tax, depreciation, amortization and share-based compensation.

We believe that Adjusted EBITDA provides useful information to investors about us and our results because Adjusted EBITDA is among the measures used by our management team to evaluate our financial and operating performance and make day-to-day financial and operating decisions. We believe the exclusion of financial income / (expense), income tax, depreciation, amortization and non-cash share-based compensation expenses in the calculation of Adjusted EBITDA is useful to both management and investors in their evaluation of our business and our financial and operating performance because such expenses are not indicative of our ongoing operations and would make it more difficult for investors to evaluate period-over-period performance of our core operations.

 

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Adjusted EBITDA should not be considered in isolation or as a substitute for other measures of financial performance reported in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, including:

 

    Adjusted EBITDA does not reflect changes in, including cash requirements for, our working capital needs or contractual commitments;

 

    Adjusted EBITDA does not reflect our financial expenses, or the cash requirements to service interest or principal payments on our indebtedness, or interest income or other financial income;

 

    Adjusted EBITDA does not reflect our income tax expense or the cash requirements to pay our income taxes;

 

    although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will need to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and

 

    other companies may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure.

We compensate for the inherent limitations associated with using Adjusted EBITDA through disclosure of these limitations, presentation of our consolidated financial statements in accordance with U.S. GAAP and reconciliation of Adjusted EBITDA to the most directly comparable U.S. GAAP measure, net income / (loss).

The table below provides a reconciliation of our net income / (loss) to Adjusted EBITDA:

 

     Year Ended December 31,  
     2016      2015  
     (unaudited)  
     (in thousands)  

Net income / (loss)

   $ 17,797      $ (85,276

Financial income

     (8,327      (10,797

Financial expense

     15,079        23,702  

Income tax expense

     10,538        18,004  

Depreciation expense

     5,089        5,152  

Amortization of intangible assets

     7,835        9,287  

Share-based compensation expense

     574        861  
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 48,585      $ (39,067
  

 

 

    

 

 

 

Components of Results of Operations

Revenue

We report our revenue on a net basis, deducting cancellations and amounts that we collect as sales taxes. We derive most of our revenue from commissions and other incentive payments paid by our suppliers and service fees paid by our customers for transactions through our platform. We also derive revenue from the sale of third-party advertisements on our websites and from certain suppliers when their brands appears in our advertisements in mass media.

The structure of our fees and commissions varies significantly by product. Supplier incentives take several forms, including up-front commissions, which we recognize at the time of booking or upon check-in; back-end commissions and other bonuses based on satisfying volume targets for certain suppliers; as well as certain payments from our GDS suppliers and other suppliers. We also receive certain service fees from our customers, which vary based on a number of factors, including the type of product, destination and point of sale.

 

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In our Air segment, we recognize revenue for certain up-front incentives commissions and service fees at the time of sale. In our Packages, Hotel and Other Travel Products segment, in most cases we recognize revenue at the time of travel, or, in the case of non-reimbursable transactions, at the time of booking. In our pre-pay model transactions, our supplier agreements allow us to receive full payment at the time of booking from the customer while the supplier is paid after check-out. In our pay-at-destination model, we may either record the booking without taking payment from the customer or collect an amount equal to the commission from the customer while the customer pays the supplier only at check-out.

Cost of Revenue

Cost of revenue consists of (1) credit card processing fees, (2) fees that we pay to banks relating to the installment plans that we offer, (3) the costs of operating our fulfillment center, customer service and risk management, (4) costs borne by us as a result of credit card chargebacks, including those related to fraud, (5) claims against us under consumer protection laws, (6) certain transaction-based taxes, other than income taxes (which are included under income tax expense) and sales taxes (which are deducted from our revenue) and (7) a portion of overhead expenses distributed based on the percentage of our employees attributable to cost of revenue.

Selling and Marketing

Selling and marketing expense is comprised of direct costs, including online marketing such as search engine and social media marketing, and offline marketing, such as television and print advertising. It also includes expenses of our selling and marketing personnel and related overhead usually distributed based on the percentage of our employees attributable to selling and marketing (for example, rent, facilities, depreciation etc.) Lastly, selling and marketing expense also includes commissions paid to certain third-party affiliates for sales that they generate through our systems.

General and Administrative

General and administrative expense consists primarily of personnel expenses for management, including both senior management and local managers, and employees involved in general corporate functions, including finance, accounting, tax, legal, human resources and commercial analysts, our share-based compensation expenses for grants to members of our management team and professional and consulting fees. General and administrative expense also includes a portion of the overhead distributed based on the percentage of our employees attributable to general and administrative (for example, rent, facilities, depreciation etc.) General and administrative expense also includes bad debt expense that we recognize relating to the risk that we are unable to collect receivables from certain suppliers.

Technology and Product Development

Technology and product development expense includes the costs of developing our platform, as well as information technology costs to support our infrastructure, back-office operations and overall monitoring and security of our networks. This expense is principally comprised of personnel and depreciation and amortization of technology assets, including hardware, and purchased and internally-developed software. Technology and product development expense also includes a portion of the overhead expense for our facilities, based on the percentage of our employees attributable to technology and product development. During 2016 and 2015, we capitalized $12.2 million and $13.6 million, respectively, for internal-use software and website development costs.

We classify our supplier relationships as a component of the products that we offer to our customers and, accordingly, our costs of acquiring and maintaining supplier relationships, including the costs of our personnel engaged in supplier relationships, are included as a component of technology and product development expense.

 

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Financial Income / (Expense)

The functional currency of Despegar.com, Corp. and the functional currency of certain of our subsidiaries, including our U.S., Ecuador and Venezuela subsidiaries, as well as one of our Uruguay subsidiaries, is the dollar. Each of our other subsidiaries uses its local currency as its functional currency. Gains and losses resulting from transactions by each entity in non-functional currency are included in financial income / (expense). Financial income / (expense) also includes gains and losses on certain derivative financial instruments that we use to manage our exposure to foreign exchange volatility.

In addition, our assets and liabilities are translated from local currencies into dollars at the end of each period. However, any gains and losses resulting from such translations are reflected in our consolidated statement of comprehensive income / (loss) and are not reflected in our consolidated statements of operations. See also “—Quantitative and Qualitative Disclosures about Market Risk—Foreign Exchange Risk.”

Many of our customers finance their purchases from us using installment plans offered by third-party financial institutions. When customers make purchases using installment plans, the third-party financial institution bears the risk that the customer will make the required installment payments. In all markets except Brazil, we typically receive payment in full in less than one month after booking. However, our agreements with financing providers in Brazil allow for a significant delay between the initial transaction and the payment of the purchase price to us. In Brazil, we generally receive payment from the installment financing provider only after each scheduled payment due date from the customer. In the interim, the payment obligation is recognized as a receivable on our balance sheet. In some cases, we elect to factor or discount these Brazilian installment receivables, allowing us to receive the payment of the purchase price more quickly. The difference between the book value of the receivable and the amount that we receive for factoring such receivable is recognized as financial expense.

We also maintain revolving credit facilities in certain jurisdictions, and the associated interest expense is also included in financial income / (expense). As of December 31, 2016, we had outstanding borrowings of $7.1 million under these facilities.

Income Tax Expense

As a Delaware corporation, our predecessor and subsidiary Decolar.com, Inc. is subject to taxation in the United States. In May 2017, the stockholders of Decolar.com, Inc. exchanged their shares for newly issued shares of Despegar.com, Corp. Although Despegar.com, Corp. is organized in the BVI, as a result of the exchange, under the “anti-inversion” rules of Section 7874 of the U.S. Internal Revenue Code, Despegar.com, Corp. is treated for U.S. federal tax purposes as a U.S. corporation and, accordingly, Despegar.com, Corp. is subject to U.S. federal income tax on its worldwide income, currently at a maximum rate of 35%.

We are subject to foreign taxes in the multiple jurisdictions in which we operate. In Brazil and Argentina, the income tax statutory rates are 34% and 35%, respectively.

In certain jurisdictions, we have outstanding net operating losses from prior periods. Deferred taxes related to these loss carryforwards are fully reserved.

 

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Results of Operations

 

     Year Ended December 31,        
     2016     2015        
     (in thousands)        
           % of
Revenue
          % of
Revenue
    % Change  

Revenue

          

Air

   $ 205,721       50.0     $ 219,817       52.1       (6.4

Packages, Hotels and Other Travel Products

     205,441       50.0       201,894       47.9       1.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

Total revenue

     411,162       100.0       421,711       100.0       (2.5

Cost of revenue

     126,675       30.8       154,213       36.6       (17.9
  

 

 

   

 

 

   

 

 

   

 

 

   

Gross profit

     284,487       69.2       267,498       63.4       6.4  

Operating expenses

          

Selling and marketing

     121,466       29.5       170,149       40.3       (28.6

General and administrative

     64,683       15.7       78,181       18.5       (17.3

Technology and product development

     63,251       15.4       73,535       17.4       (14.0
  

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

     249,400       60.7       321,865       76.3       (22.5

Operating income / (loss)

     35,087       8.5       (54,367     (12.9     NM  

Financial income / (expense)

     (6,752     (1.6     (12,905     (3.1     (47.7
  

 

 

   

 

 

   

 

 

   

 

 

   

Net income / (loss) before income taxes

     28,335       6.9       (67,272     (16.0     NM  

Income tax expense

     10,538       2.6       18,004       4.3       NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

Net income / (loss)

   $ 17,797       4.3     $ (85,276     (20.2     NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

Note: “NM” denotes not meaningful.

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Revenue

Revenue declined by 2.5%, from $421.7 million in 2015 to $411.2 million in 2016. The decline in revenue was primarily a result of lower gross bookings, which declined 9.2% from $3,592 million in 2015 to $3,260 million in 2016. The reduction in gross bookings was partially a result of economic weakness in our largest markets of Brazil and Argentina, including a decline in the value of the Brazilian real and the Argentine peso, which contributed to a decrease of almost 20% in the number of transactions in Brazil as travel became more expensive for our customers, as well as a decrease of 3% in the gross bookings per transaction expressed in dollars. In addition, we imposed a more restrictive anti-fraud protocol in 2016 as a response to an increase in attempted fraudulent transactions, which resulted in an increased rate of rejection of legitimate transactions, also reducing gross bookings. Our anti-fraud protocols were further refined in late 2016, and we believe that we are now better able to identify fraudulent transactions while rejecting fewer legitimate transactions.

In addition, in 2016, we instituted a new clause in our contracts with suppliers of prepaid products imposing a 12-month time limit from the check-out date for our travel suppliers to invoice us for payment. As a result of that change, we were able to recognize approximately $9.0 million in breakage revenue for unbilled amounts from prior years corresponding to aged travel invoices, which also partially offset the decline in revenue from 2015.

Cost of Revenue

Cost of revenue declined from $154.2 million in 2015 to $126.7 million in 2016, or a decline of 17.9%. The decline was partially a result of lower fraud expense recognized in 2016 as compared to 2015, which we believe

 

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was due in part to our implementation of more restrictive anti-fraud protocol. Although the chargebacks that we experienced due to the heightened fraud attempts from late 2015 through 2016 were more prominent in 2016, we were able to identify the trend in fraud attempts in 2015 and we created a reserve for increased fraud expense in 2015. The decline in cost of revenue was also partially a result of improved efficiency as we were able to reduce headcount at our fulfillment center by 23% from mid-2015 to the end of 2016, and a result of the decline in revenue and gross bookings. As a percentage of revenue, cost of revenue declined from 36.6% in 2015 to 30.8% in 2016.

Gross Profit

Gross profit increased from $267.5 million in 2015 to $284.5 million in 2016, or an increase of 6.4%, as our reduction in cost of revenue more than offset our decline in revenue. As a percentage of revenue, gross profit increased from 63.4% in 2015 to 69.2% in 2016.

Selling and Marketing

Selling and marketing expense declined from $170.1 million in 2015 to $121.5 million in 2016, or a decline of 28.6%. The decline was partially a result of a reduction of marketing activities, totaling approximately $47.0 million, mostly in Brazil and Argentina, as we adjusted our customer acquisition strategy to balance the expansion of market share and customer profitability. The decline was also partially a result of currency depreciation, particularly the Argentine peso, relative to our reporting currency of the dollar. As a percentage of revenue, selling and marketing expense declined from 40.3% in 2015 to 29.5% in 2016.

General and Administrative

General and administrative expense declined from $78.2 million in 2015 to $64.7 million in 2016, or a decline of 17.3%. The decline was primarily a result of a reduction in compensation costs as a result of currency depreciation, particularly the Argentine peso, relative to our reporting currency of the dollar, as many of our general and administrative functions are located in Argentina as well as a reduction in headcount of administrative personnel, partially as a result of our use of ERP processes for certain finance and accounting functions. The decline was also partially a result of a $9.8 million tax contingency recorded in 2015. As a percentage of revenue, general and administrative expense declined from 18.5% in 2015 to 15.7% in 2016.

Technology and Product Development

Technology and product development expense declined from $73.5 million in 2015 to $63.3 million in 2016, or a decline of 14.0%. The decline was primarily a result of a reduction in compensation costs. The decline in compensation costs was a result of currency depreciation, particularly in the Argentine peso, as compared to our reporting currency of the dollar, as well as reductions in headcount of our travel supplier management personnel, partially as a result of automation, and of our operations and customer service personnel, primarily due to outsourcing. As a percentage of revenue, technology and product development expense declined from 17.4% in 2015 to 15.4% in 2016.

Operating Income / (Loss)

In 2015, we had an operating loss of $54.4 million as compared to operating income of $35.1 million in 2016, or an increase in operating income of $89.5 million. This increase was a result of declines in cost of revenue and in each component of our operating expenses, partially as a result of currency depreciation, particularly in the Argentine peso, as compared to our reporting currency of the dollar. These declines in expenses were partially offset by a decline in revenue. As a percentage of revenue, our operating income / (loss) increased from (12.9)% in 2015 to 8.5% in 2016.

 

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Financial Income / (Expense)

Financial expense declined by 47.7%, from $12.9 million in 2015 to $6.8 million in 2016. The decline was primarily a result of our election to reduce our factoring of receivables for outstanding payments from third-party financial institutions relating to customer purchases using installment plans in Brazil. We reduced our use of factoring in 2016 in part to increase the total amount of our receivables denominated in Brazilian reais in order to reduce our net currency exposure to the Brazilian real. Increasing our receivables denominated in Brazilian reais reduced our net currency exposure to the Brazilian real because we also carry an accounts payable balance due to suppliers in Brazil that is also denominated in Brazilian reais. We also were able to reduce our use of factoring in part because our stronger operating cash flows in 2016 reduced our financing needs. As a percentage of revenue, financial expense declined from 3.1% in 2015 to 1.6% in 2016.

Income Tax Expense

We are subject to taxes in the multiple jurisdictions where we operate. Our tax obligations consist of current and deferred income taxes (or, in certain jurisdictions, taxes based on our assets rather than our taxable income) and withholding taxes incurred in these jurisdictions. Income tax expense decreased from $18.0 million to $10.5 million, primarily as a result of (1) lower non-deductible expenses and (2) an increase in non-taxable income.

Seasonality

We generally experience seasonal fluctuations in our financial results. Latin American travelers, particularly leisure travelers who are our primary customers, tend to travel most frequently at the end of the fourth quarter and during the first quarter of each year. Leisure travel is more common in Latin America at that time because those quarters include the summer months in the southern hemisphere, along with many school holidays and the Christmas holiday season. We typically experience a higher volume of transactions in the fourth quarter relating to travel in that period. However, many of the transactions booked in the fourth quarter relate to travel dates in the first quarter of the following fiscal year and, as a result, much of the revenue associated with those transactions is not recognized until the first quarter of the following year.

Liquidity and Capital Resources

As described under “Use of Proceeds,” we intend to use the net proceeds from this offering for general corporate purposes. In addition, we do not currently expect to pay any cash dividends to our shareholders in the foreseeable future.

Our pre-pay model allows us to collect from our customers well before we pay to our suppliers, which allows us to use the cash for other purposes in the interim. Although we believe that upon the completion of this offering we will have a sufficient level of cash and cash equivalents to cover our working capital needs in the ordinary course of business and to continue to expand our business, we may, from time to time, explore additional financing sources to lower our cost of capital, which could include equity, equity-linked and debt financing. In addition, from time to time, we may review acquisition and investment opportunities. If we elect to pursue any such investments, we may fund them with internally generated funds, bank financing, the issuance of debt or equity or a combination thereof.

We believe, based on our current operating plan, that our existing cash and cash equivalents, together with other sources of financing and cash flows from operating activities, will be sufficient to meet our anticipated cash needs for working capital, financial liabilities, capital expenditures and business expansion for at least the next twelve months. We also maintained revolving credit facilities with aggregate commitments of $7.2 million as of December 31, 2016, which may also be used to finance our operations. In addition, our payment terms with our customers and suppliers often allow us to receive payment from customers before we are required to make payments to our suppliers, which also reduces our need to use external sources of financing.

 

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In addition, the ability of certain of our subsidiaries to pay dividends to us is subject to their having satisfied requirements under local law to set aside a portion of their net income in each year to legal reserves, as described below.

In accordance with Argentine and Uruguayan companies law, our subsidiaries incorporated in Argentina and in Uruguay must set aside at least 5% of their net profit (determined on the basis of their statutory accounts) in each year to legal reserves, until such reserves equal 20% of their respective issued share capital. As of December 31, 2016, no legal reserves were required at our Argentine subsidiary because it had accumulated losses. As of that date, our Uruguayan subsidiary was required to set aside a legal reserve of $0.04 million, which was fully constituted.

Restricted and Unrestricted Cash and Cash Equivalents

As of December 31, 2016 and 2015, we had unrestricted cash and cash equivalents of $76.0 million and $102.1 million, respectively. In addition, as of December 31, 2015 we had short-term investments of $40.0 million, with a maturity greater than three months. After December 31, 2015, those funds were reinvested in short-term investments with a maturity shorter than three months and, as a result, the amounts were classified as cash and cash equivalents rather than short-term investments as of December 31, 2016.

Additionally, as of December 31, 2016 and 2015, we had restricted cash and cash equivalents of $43.2 million and $33.8 million, respectively, which primarily consisted of amounts held in restricted accounts to secure our obligations to various suppliers.

Cash Flows for the Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

The following table sets forth certain consolidated cash flow information for the years ended December 31, 2016 and 2015:

 

     Year Ended December 31,  
(in thousands)          2016                 2015        

Net cash flows used in operating activities

   $ (43,292   $ (24,249

Net cash flows provided by / (used in) investing activities

     14,384       (80,986

Net cash flows provided by financing activities

     5,142       198,793  

Effect of exchange rate changes on cash and cash equivalents

     (2,382     (12,477

Net (decrease) / increase in cash and cash equivalents

     (26,148     81,080  

Net Cash Flows Used in Operating Activities

Operating activities used net cash of $43.3 million in 2016 and $24.2 million in 2015. The increase in net cash used in operating activities was primarily the result of an increase in receivables, which was primarily a result of our decision to allow our receivables from third-party financial institutions relating to installment plan purchases in Brazil to remain outstanding for a longer period instead of factoring such receivables to receive payment more quickly. We reduced our use of factoring in 2016 in part to increase the total amount of our receivables denominated in Brazilian reais to reduce our currency risk with respect to our balance of accounts payable to suppliers in Brazil that are denominated in Brazilian reais. We also were able to reduce our use of factoring in part because our otherwise stronger operating cash flows in 2016 reduced our financing needs. The increase in cash used in operating activities was partially offset by an increase in net income in 2016.

Net Cash Flows Provided by / (Used in) Investing Activities

Investing activities provided net cash of $14.4 million in 2016 and used net cash of $81.0 million in 2015. The increase in net cash provided by investing activities was primarily the result of holding $40.0 million in

 

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short-term investments with a maturity longer than three months in 2015, which was classified as a short-term investment, and then reinvesting that $40.0 million in investments with a maturity shorter than three months in 2016, which was classified as cash and cash equivalents. The increase in net cash flows from investing activities was partially offset by an increase in investment in intangible assets in 2016. In addition, in 2015 we pledged $10.0 million of cash to Expedia, which was then classified as restricted cash (see note 12 to our audited consolidated financial statements).

Net Cash Flows Provided by Financing Activities

Net cash flows provided by financing activities were $198.8 million in 2015 and $5.1 million in 2016. The net cash flows provided by financing activities in 2015 were primarily a result of Expedia’s investment in the common stock of Decolar.com, Inc. (our predecessor), which provided us with $270.0 million, of which $45.0 million was used to repurchase shares from other stockholders and $50.0 million was used to repay a portion of our indebtedness. The net cash flows provided by financing activities in 2016 were primarily a result of increased borrowings under our revolving credit facilities.

Currency Exchange Rates

The translation effect of converting cash held in local currencies to dollars reduced our cash and cash equivalents by $12.5 million and $2.4 million in 2015 and 2016, respectively.

Contractual Obligations and Other Commitments

The following table represents our contractual commitments as of December 31, 2016:

 

     Payments Due by Period  
(in thousands)    Total      Within
1 Year
     2-3
Years
     4-5
Years
     After 5
Years
 

Operating lease obligations

   $ 13,526      $ 3,720      $ 6,262      $ 3,434      $ 110  

Other long-term liabilities(1)

     125,000        —          —          —          125,000  

Total contractual obligations

   $ 138,526      $ 3,720      $ 6,262      $ 3,434      $ 125,110  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) We may be required to make a termination payment of $125.0 million to Expedia if, among other things, we elect to terminate the Expedia Outsourcing Agreement on or after March 6, 2022 or the marketing fee threshold of $5.0 million over a 180-day period is not achieved. Such amount is reflected as a long-term liability on our balance sheet.

Off-Balance Sheet Arrangements

As of December 31, 2016, except for operating lease obligations as described above, we did not have any material off-balance sheet arrangements.

Research and Development

Our research and development activities are primarily focused on the development of software, which we view as an important element of the investments we make in our technology and our business. Our primary software development activities have been focused on providing an effective and engaging platform for our customers and on collecting and using data to better customize the user experience, pricing and marketing efforts for our customers. In 2016 and 2015, we spent $75.4 million and $87.1 million, respectively, on software development and other research and development activities.

 

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Certain Relationships and Related Party Transactions

We have engaged in a number of related party transactions. See the notes to our consolidated financial statements, as well as “Certain Relationships and Related Person Transactions,” included elsewhere in this prospectus.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements, see note 3—Recently Issued Accounting Pronouncements in our audited consolidated financial statements included elsewhere in this prospectus.

Critical Accounting Policies and Use of Estimates

Critical accounting policies and estimates are those that we believe are important in the preparation of our consolidated financial statements because they require that we use judgment and estimates in applying those policies. We prepare our consolidated financial statements and accompanying notes in accordance with U.S. GAAP.

Preparation of the consolidated financial statements included elsewhere in this prospectus requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements as well as revenue and expenses during the periods reported. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this prospectus.

There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:

 

    it requires us to make an assumption because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate; and

 

    changes in the estimate or different estimates that we could have selected may have had a material impact on our financial condition or results of operations.

For more information on each of these policies, see note 3—Summary of Significant Accounting Policies, in the notes to our audited consolidated financial statements included elsewhere in this prospectus. We discuss information about the nature and rationale for our critical accounting estimates below.

Accounting for Certain Pre-pay Revenue

We accrue the cost of certain pre-pay revenue based on the amount we expect to be billed by suppliers. In certain instances when a supplier invoices us for less than the cost we accrued, we generally recognize those amounts as revenue twelve months in arrears, when we determine it is not probable that we will be required to pay the supplier, based on historical experience and contract terms. Actual revenue could be greater or less than the amounts estimated due to changes in hotel billing practices or changes in traveler behavior.

 

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Recoverability of Goodwill and Indefinite and Definite-Lived Intangible Assets

Goodwill. We assess goodwill for impairment annually as of December 31, if events and circumstances indicate impairment may have occurred. In the evaluation of goodwill for impairment, we typically first perform a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. If so, we perform a quantitative assessment and compare the fair value of the reporting unit to the carrying value. If the carrying value of a reporting unit exceeds its fair value, the goodwill of that reporting unit is potentially impaired and we proceed to step two of the impairment analysis. In step two of the analysis, we will record an impairment loss equal to the excess of the carrying value of the reporting unit’s goodwill over its implied fair value should such a circumstance arise. Periodically, we may choose to forgo the initial qualitative assessment and perform quantitative analysis to assist in our annual evaluation.

We generally base our measurement of fair value of reporting units on an analysis of the present value of future discounted cash flows. The discounted cash flows model indicates the fair value of the reporting units based on the present value of the cash flows that we expect the reporting units to generate in the future. Our significant estimates in the discounted cash flows model include: our weighted average cost of capital, long-term rate of growth and profitability of our business and working capital effects.

We believe the weighted use of discounted cash flows is the best method for determining the fair value of our reporting units because these are the most common valuation methodology used within the travel and internet industries.

Indefinite-Lived Intangible Assets. We base our measurement of fair value of indefinite-lived intangible assets, which primarily consist of brands and domains, using the relief-from-royalty method. This method assumes that the brands and domains have value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.

Definite-Lived Intangible Assets. We review the carrying value of long-lived assets or asset groups to be used in operations whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Factors that would necessitate an impairment assessment include a significant adverse change in the extent or manner in which an asset is used, a significant adverse change in legal factors or the business climate that could affect the value of the asset, or a significant decline in the observable market value of an asset, among others. If such facts indicate a potential impairment, we would assess the recoverability of an asset group by determining if the carrying value of the asset group exceeds the sum of the projected undiscounted cash flows expected to result from the use and eventual disposition of the assets over the remaining economic life of the primary asset in the asset group. If the recoverability test indicates that the carrying value of the asset group is not recoverable, we will estimate the fair value of the asset group using appropriate valuation methodologies, which would typically include an estimate of discounted cash flows. Any impairment would be measured as the difference between the asset groups carrying amount and its estimated fair value.

The use of different estimates or assumptions in determining the fair value of our goodwill, indefinite-lived and definite-lived intangible assets may result in different values for these assets, which could result in an impairment or, in the period in which an impairment is recognized, could result in a materially different impairment charge.

Income Taxes

We record income taxes under the liability method. Deferred tax assets and liabilities reflect our estimation of the future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. We determine deferred income taxes based on the differences in accounting methods and timing between financial statement and income tax reporting. Accordingly, we determine the deferred tax asset

 

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or liability for each temporary difference based on the enacted tax rates expected to be in effect when we realize the underlying items of income and expense. We consider many factors when assessing the likelihood of future realization of our deferred tax assets, including our recent earnings experience by jurisdiction, expectations of future taxable income, and the carryforward periods available to us for tax reporting purposes, as well as other relevant factors. We may establish a valuation allowance to reduce deferred tax assets to the amount we believe is more likely than not to be realized. Due to inherent complexities arising from the nature of our businesses, future changes in income tax law, tax sharing agreements or variances between our actual and anticipated operating results, we make certain judgments and estimates. Therefore, actual income taxes could materially vary from these estimates.

Other Long-Term Liabilities

Various Legal and Tax Contingencies. We record liabilities to address potential exposures related to business and tax positions we have taken that have been or could be challenged by taxing authorities. In addition, we record liabilities associated with legal proceedings and lawsuits. These liabilities are recorded when the likelihood of payment is probable and the amounts can be reasonably estimated. The determination for required liabilities is based upon analysis of each individual tax issue, or legal proceeding, taking into consideration the likelihood of adverse judgments and the range of possible loss. In addition, our analysis may be based on discussions with outside legal counsel. The ultimate resolution of these potential tax exposures and legal proceedings may be greater or less than the liabilities recorded.

Stock-Based Compensation

Our primary form of employee stock-based compensation is stock option awards. We measure the value of stock option awards on the date of grant at fair value using the appropriate valuation techniques, including the Black-Scholes and Monte Carlo option-pricing models. We amortize the fair value over the remaining term on a straight-line basis. We account for forfeitures as they occur. The pricing models require various highly judgmental assumptions including volatility and expected option term. If any of the assumptions used in the models change significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Public Company Cost

Upon consummation of our initial public offering, we will become a public company, and our ordinary shares will be publicly traded on the    . As a result, we will need to comply with new laws, regulations and requirements that we did not need to comply with as a private company, including provisions of the Sarbanes-Oxley Act, other applicable SEC regulations and the requirements of the    . Compliance with the requirements of being a public company will require us to increase our general and administrative expenses in order to pay our employees, legal counsel and independent registered public accountants to assist us in, among other things, instituting and monitoring a more comprehensive compliance and board governance function, establishing and maintaining internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act and preparing and distributing periodic public reports in compliance with our obligations under the federal securities laws. In addition, as a public company, it will be more expensive for us to obtain directors’ and officers’ liability insurance.

Jumpstart Our Business Startups Act of 2012

The JOBS Act permits an EGC such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected not to take advantage of the extended transition period to comply with new or revised accounting standards; however, we have elected to adopt certain of the reduced disclosure requirements available to EGCs.

 

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Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

We report our financial results in dollars, but most of our revenue and expenses are denominated in other currencies, particularly the Argentine peso and the Brazilian real. Any changes in the exchange rates of any such currencies against the dollar will affect our reported financial results as translated into dollars. Furthermore, many of our customers travel internationally and any changes in the exchange rate between their home currency and the currency of their intended destination may influence their travel purchases. We also use derivative financial instruments in some cases to manage our foreign exchange risk.

Our supplier arrangements often result in significant balances of both accounts payable and accounts receivable denominated in various currencies. To the extent that the timing of such payments are within our control, we often attempt to accelerate or delay such payments to minimize the disparity between our accounts payable and accounts receivable denominated in each currency, which reduces the effect of exchange rate fluctuations on our reported financial results. For example, we reduced our factoring of Brazilian installment receivables in 2016 in part to increase the total amount of our receivables denominated in Brazilian reais to partially offset our larger balance of accounts payable denominated in Brazilian reais. In addition, we can be exposed to foreign exchange risk with respect to international travel if we accept upfront payment at the time of booking in a customer’s home currency and are later required to pay the supplier in the supplier’s home currency.

Inflation and Interest Rate Risk

Brazil, Argentina and many other countries in Latin America have historically experienced high rates of inflation. Inflationary pressures persist, and actions taken in an effort to curb inflation, coupled with public speculation about possible future governmental actions, have in the past contributed to economic uncertainty in Brazil, Argentina and other Latin America countries and heightened volatility in the Latin America financial markets. Changes in inflation rates can affect our pricing as well as our expenses, and the inflation rates in the countries where we generate revenue in any period may be higher or lower than the inflation rates in the countries where we incur expenses. In addition, higher inflation may lead our customers to make more purchases using installment or other financing options, and may make such financing options more expensive for us.

The inflation rate in Brazil, as reflected by the IPCA index, was 10.7% in 2015 and 6.3% in 2016. The inflation rate in Argentina, as measured by the City of Buenos Aires Consumer Price Index, was 26.9% in 2015 and 41.0% in 2016. According to measurements from INDEC of the Consumer Price Index, inflation for the first nine months of 2015 and for the period from May to December 2016 was 10.7% and 16.9%, respectively. National statistical data was not available in Argentina from October 2015 to April 2016.

Interest rates are highly sensitive to many factors, including fiscal and monetary policies to combat inflation and economic and political and other factors beyond our control. From time to time, we factor our receivables to receive cash more quickly. The costs of factoring are driven primarily by interest rates which, in turn, are influenced significantly by inflation and expectations for future inflation. In addition, we maintain revolving credit facilities in certain countries, and the interest rates payable with respect to those facilities also vary based on local market interest rates.

 

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BUSINESS

Overview

We are the leading online travel company in Latin America, known by our two brands, Despegar, our global brand, and Decolar, our Brazilian brand. Approximately four million customers transacted on our web and mobile platform generating a total of $3.3 billion in gross bookings in 2016. We have a comprehensive product offering, including airline tickets, packages, hotels and other travel-related products, which enables consumers to find, compare, plan and purchase travel products easily through our marketplace. We provide our network of travel suppliers a technology platform for managing the distribution of their products and access to our users. We believe that our focus on the underpenetrated Latin American online travel market, our knowledge of the consumer and supplier landscape in the region and our ability to manage the business successfully through economic cycles will allow us to continue our industry leadership.

The Latin American travel industry, comprised of air, hotel and a vast array of other travel-related products within Latin America and inbound to the region, reached $60.2 billion in travel bookings in 2015, and is expected to grow to $73.3 billion in 2020, according to Phocuswright. Total Latin America online travel bookings were $17.4 billion in 2015 and are expected to grow to approximately $29.5 billion by 2020, representing an estimated CAGR of 11.1%, according to Phocuswright. Penetration of online travel bookings is expected to increase from 29% in 2015 to 40% in 2020. Factors driving the growth in online travel bookings include the increase of internet penetration, further adoption of smartphones, tablets and other mobile devices and a growing middle class with greater access to banking services and credit products, together enabling a larger segment of the growing population to transact online or on mobile devices.

The Latin American travel industry is characterized by significant fragmentation in suppliers across airlines, hotels and other travel products. This fragmentation is compounded by regional complexities, including differences in language, local customs, travel preferences, currencies and regulatory regimes across the more than 40 countries in the region. These factors create challenges for suppliers to reach customers directly and, consequently, create a significant market opportunity for us.

We believe we have the broadest travel portfolio among OTAs in Latin America, with inventory from global suppliers, including over 200 airlines and over 300,000 hotels, as well as approximately 900 car rental agencies and 300 destination services suppliers with more than 7,000 activities. Additionally, we have accumulated approximately 8.5 million user-generated reviews, of which 1.9 million were submitted in 2016, which we believe drive user engagement. Our business benefits from network effects: our large customer base helps us to attract additional travel suppliers and, in turn, a larger network of travel suppliers helps us to attract new customers by enhancing our product offering. Additionally, as we continue to grow our marketplace, we are increasingly able to offer more competitive pricing and product availability to our customers as well as enhance the effectiveness of our marketing strategy.

We launched our award-winning mobile travel app in 2012 and it is an increasingly important part of our business, as it allows consumers to access and browse our real-time inventory, compare prices and transact through their mobile devices quickly. As of December 31, 2016, our apps have more than 25 million cumulative downloads from the iOS App Store and Google Play and we believe they are the most downloaded OTA apps in Latin America for the period 2012 to 2016. During 2016, mobile accounted for approximately 50% of all of our user visits, and approximately 19% of our gross bookings were purchased on our mobile platform, complementing our desktop website traffic. As internet, smartphone and other mobile device penetration continue to increase, we believe that our strength in mobile will continue to be a strategic advantage.

We view our brand recognition among Latin America travelers as one of our key competitive advantages. We believe that our brands, Despegar and Decolar, have the highest brand awareness in online travel across Latin America, with approximately 138 million unique visitors to our platform in 2016, based on our internal estimates. According to Google Adwords, Despegar and Decolar had the highest brand recognition among OTAs

 

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in Latin America. In 2016, almost half of the traffic on our platform was from visitors coming to our platform directly, or through other free channels, rather than through paid channels, largely due to the strength of our brand. To date, we have invested more than $1.0 billion in marketing and branding initiatives promoting our brand, which we believe, combined with the quality of the service we have delivered over the years, has made us a trusted brand with our customers. Based on our own customer surveys, we had an NPS of 61 in 2016, which reflects our favorable brand affinity among our customers. In addition, our leading web and mobile platform and comprehensive product offering enable us to retain current customers. In 2016, 58% of our transactions were with repeat customers.

Travel Market Opportunity in Latin America

Latin America is one of the largest and most diverse regions in the world. Comprised of over 40 countries with a total population of over 600 million, the region encompasses multiple languages, currencies and regulatory regimes. The travel market serving Latin American consumers presents a significant opportunity for us due to its large market size, highly fragmented base of travel suppliers and rapid growth in the adoption of technology-based solutions for consumers and travel suppliers.

 

 

LOGO

 

 

LOGO

 

(1) According to Euromonitor.
(2) Average of Brazil, Argentina, Mexico, Colombia and Chile.

Large and Growing Travel Industry

The Latin American travel industry, comprised of air, hotel and a vast array of other travel-related products within Latin America and inbound to the region, represented a $60.2 billion market as of 2015 and is expected to grow at an estimated CAGR of 4.0% to $73.3 billion in 2020. In 2015, airline bookings in Latin America were $20.3 billion, hotel bookings were $29.8 billion and other travel-related products bookings, including car rentals and destination services, such as tour operators, were $10.2 billion, according to Phocuswright.

 

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Long-term favorable macroeconomic trends in the region have contributed to the expansion of the middle class and increased consumption in the region. According to the World Bank, the middle class (defined as per capita income of $3,650 to $18,250 per year) comprised 35% of the Latin American population in 2014, compared to less than 25% a decade prior. This amounted to an additional 108 million people moving into the middle class. The growth in the middle class and the expansion of GDP per capita have increased disposable income available for discretionary purchases, including travel.

Overview of Suppliers in the Latin American Travel Industry

The Latin American travel industry is characterized by significant supplier fragmentation across airlines, hotels and other travel products. Regional complexities, including differences in language, local customs, travel preferences, currencies and regulatory regimes across the more than 40 countries in the region create challenges for suppliers to reach customers directly, at scale and across the region.

The airline industry in the region is highly fragmented, as evidenced by the fact that the largest four airlines in Latin America by bookings accounted for approximately 40% of total bookings per year in 2015 in comparison to 68% in the United States during the same period, according to Euromonitor. Further driving this fragmentation is the growing number of smaller airlines, including low-cost airlines that have been commencing operation in recent years. According to CAPA Center for Aviation, 11 new airlines commenced operations in Latin America in 2016 and a further 11 are expected to do so in 2017. Today, travel agencies are the leading distribution channel in the region for airlines, due to their ability to provide greater selection and scale across the region.

Additionally, Latin America’s hotel industry is characterized by higher fragmentation and lower occupancy rates than that of other developed markets. These factors increases our importance to hotels. In Latin America, the top ten hotel chains had a 15.3% market share in 2015, compared to 51.8% in the United States during the same period, according to Euromonitor. Furthermore, a large portion of the room capacity in Latin America is provided by independent hotels, with major chains accounting for only 46% of total capacity, compared to 72% in the United States, according to Skift and SiteMinder. The hotel occupancy rate in South America was 55% in 2016, compared to 65% in North America and 70% in Europe, according to STR Global. As such, we have a broad supplier base, with approximately 7,000 hotels generating approximately 90% of our hotel revenue. We believe that due to a lack of scale or unified brand, other travel services in Latin America tend to be even more fragmented, operating in specific cities or countries.

Trends Driving Online Travel and Our Growth

An expanding and evolving travel market, coupled with greater internet, smartphone and other mobile device penetration, is expected to drive robust growth in online travel bookings in Latin America. Total Latin America online travel bookings were $8.2 billion in 2010 and $17.4 billion in 2015, and are expected to nearly double to approximately $29.5 billion by 2020, an estimated CAGR of 11.1%, according to Phocuswright.

According to Phocuswright, online travel penetration in Latin America, measured as online bookings as a percentage of total travel bookings, increased from 14% in 2010 to 29% in 2015 and is expected to climb to 40% by 2020. By comparison, in developed markets like the United States and Europe, online booking penetration already exceeds 45%. As consumers shift to researching and booking travel online, travel suppliers have adapted their offerings and deepened their relationships with online marketing and booking channels, such as OTAs, to generate revenue. OTAs provide travel suppliers with scale and distribution into new and existing markets and 24/7 customer service and localization services, including language and payment capabilities. Factors driving the growth in online travel include:

 

   

Increasing internet penetration. Internet penetration across Latin America continues to rise. In 2015, there were approximately 328 million internet users in Latin America, according to eMarketer, representing 54% of the population, which is expected to increase to approximately 387 million by 2019,

 

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representing penetration of 61%, as compared to 83% in North America. As such, while Latin America internet penetration has increased, it has substantial room for growth. As internet penetration increases, Latin American consumers are increasingly using the internet to research and purchase products, including travel.

 

    Increasing adoption of mobile devices. The number of unique mobile subscribers, in Latin America is expected to grow by approximately 110 million new unique subscribers, according to the GSM Association, bringing the total to 524 million in the region by 2020. With the proliferation of smartphones and tablets, mobile has become a prominent tool for travelers to search, discover and purchase travel services.

 

    Superior user experience. Online travel booking channels, which include websites and mobile apps, empower travelers to search products and user-generated reviews and easily compare real-time availability and pricing options from multiple travel providers simultaneously, which we believe leads to higher user engagement and customer conversion.

 

    Growth in banked consumers and proliferation of credit products. With the continued development of the Latin American economy, a larger portion of the population has opened bank accounts, enabling access to new forms of payments including credit cards and other financial products. With the increased number of consumers with bank and credit card accounts, more people have the ability to make purchases online. According to Euromonitor International, the number of credit cards outstanding has grown at a CAGR of 6.9% between 2006 and 2016. Access to bank accounts and credit cards also gives consumers access to additional financing options from banks, such as payment by installments.

As the leading OTA in Latin America, we believe we are well positioned to succeed as consumers’ destination of choice for fast, easily searchable and more transparent travel research and shopping. As our market share grows, we are increasingly able to capture significant amounts of customer data including travel history and preferences and serve personalized recommendations to drive higher customer conversion. Additionally, we are able to provide better pricing through scale and by bundling multiple travel products together in a single offer.

Our Competitive Strengths

We are the leading OTA in Latin America, offering our customers a broad and diversified selection of travel products at attractive prices. Our leadership position is a result of our following core strengths:

Industry Leader in Latin America

With our launch in 1999, we have benefited from an early mover advantage in Latin America, which has allowed us to achieve significant scale and brand awareness, with approximately 138 million unique visitors to our platform in 2016, based on our internal estimates. In 2016, we had approximately four million customers, primarily in Latin America, generating approximately $3.3 billion in gross bookings. In 2016, we held the #1 ranking of all OTAs in Latin America by desktop traffic, according to SimilarWeb.

We have established relationships with a large and growing network of travel suppliers in Latin America and we have become the leading online air ticketing provider in Latin America, having sold approximately 15% of all airline tickets purchased through GDS in the region during 2016, according to Amadeus. Additionally, we believe we provide our customers with the largest travel portfolio among Latin American OTAs, with access to over 200 global airlines and over 300,000 hotels globally as well as approximately 900 car rental agencies and 300 destination services suppliers with more than 6,000 activities. Additionally, we have accumulated approximately 8.5 million user-generated reviews in total, of which 1.9 million were submitted in 2016, which we believe drive user engagement. Our platform is also of increasing importance to airlines based outside of Latin America, which generally have a limited local presence in the region, and which account for over 70% of

 

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the outbound international travel booked on our platform. Such international travel is more attractive because of its price point and higher commission structure.

Our technology platform allows us to offer our customers the ability to create custom packages of two or more products, such as a combination of airfare and a hotel booking for a particular trip, allowing us to offer customers lower combined prices that may not be available for individual products. We are also able to better cross-sell multiple travel products and provide customers with a comprehensive solution for their travel needs.

We benefit from network effects: our large customer base helps us to attract additional travel suppliers and, in turn, a larger network of travel suppliers helps us to attract new customers by enhancing our product offering. Furthermore, by growing our user base and aggregating different products from our supplier base, we are able to offer attractive pricing and availability of travel products to our customers as well as enhance the effectiveness of our marketing strategy.

Strong Brand Recognition and Awareness

We believe that Despegar, our global brand, and Decolar, our Brazilian brand, have the highest brand awareness in online travel across Latin America and are the leading brands in our five largest markets based on a study we commissioned. We have dedicated significant efforts and resources to building our brands throughout our 18-year history, including more than $1.0 billion in lifetime investment in marketing and branding activities. Based on our own customer surveys, we had an NPS of 61 in 2016, which we believe represents a strong willingness of our customers to recommend our offerings to others. In 2016, almost half of the traffic on our platform was from visitors coming to our platform directly, or through other free channels, rather than visitors coming to our platform through paid channels, largely due to the strength of our brand.

Local Market Expertise and Leadership

We have a strong track record in Latin America, with a point of sale in 20 markets, representing 95% of the region’s population, and with a leading OTA presence in key markets such as Brazil, Argentina, Mexico, Chile, and Colombia. In our two largest markets, Brazil and Argentina, we have operated for 17 and 18 years, respectively. Our knowledge of local consumers, and their buying patterns and travel preferences, as well as our ability to offer financing through our relationships with financial institutions, have enabled us to serve our customers more effectively than global competitors from outside the region. Furthermore, our extensive supplier relationships allow us to offer a greater scale and breadth of offerings than smaller, local competitors. We understand the objectives of and challenges faced by Latin American travel suppliers and we are well-positioned to address those challenges by helping the suppliers grow their businesses, all to the benefit of consumers who receive more choice at attractive pricing.

As the leading Latin American OTA, we have developed long-standing relationships with a wide range of local banks to offer installment payment plans to their credit card holders as an alternative purchase option. We believe that local banks look to partner with us because of our scale, access to our online audience and high transaction volume. We believe this differentiates us from other local and global travel agencies as those agencies either do not offer installment plans or offer installment plans from a more limited selection of financing providers. We believe our portfolio of installment plans is a meaningful driver of traffic to our platform as well as conversion. Approximately 55% of our transactions in 2016 were paid by installment. Our agreements with local banks allow us to offer installment plans without assuming collection risk from the customer.

Leading Mobile Offering

Mobile is an increasingly important part of our business, as consumers are quickly able to access and browse our real-time travel offerings, compare prices and make purchases through their mobile devices. We launched our

 

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leading mobile travel apps in 2012. As of December 31, 2016, our mobile apps have more than 25 million cumulative downloads from the iOS App Store and Google Play and we believe they are the most downloaded OTA apps in Latin America for the period from 2012 to 2016. During 2016, mobile, which includes both mobile web and our mobile apps, accounted for approximately 50% of all of our user visits, and approximately 19% of our gross bookings. We continue to provide innovative features and functionality to consumers through our mobile apps, including push notifications, dynamic updates, inventory alerts and personalized promotions as well as in-app customer service. Our customers using mobile devices have historically made more repeat transactions than customers using desktop computers. Additionally, our mobile presence allows in-destination marketing, which facilitates cross-selling of additional travel products, such as rental cars and destination services to customers, after they have arrived at their destination.

Many of our customers use their mobile device to search for travel products but complete their transactions on their desktop. However, as mobile purchasing becomes increasingly prevalent in the region, we believe our award-winning mobile platform, coupled with the widespread adoption of our apps, positions us well for an increasingly mobile future.

Powerful Data and Analytics Platform

Our large web and mobile audience and transaction volume generate a significant amount of data that allows us to better understand our customers and provide personalized travel offerings and also helps us to drive our sales, marketing and operational strategy. To offer the most effective content and products for each customer, we extensively analyze the data we collect to identify and highlight the most valuable products and destinations in each customer interaction. By gathering and analyzing data in real-time, we are quickly able to assess and react to changes in customer behavior, market pricing and other market dynamics. Currently, the majority of visitors to our platform see a personalized landing page based on such factors as user account information, past search and purchasing history and geolocation. We believe that this personalization of the user experience increases engagement and likelihood of purchase.

Effective Marketing Capabilities

We have invested significant resources in our marketing team, which we believe is a significant driver of our business. Through our vertically-integrated, in-house marketing team, we are able to control all aspects of our budget, marketing campaigns and market analytics, without the need for agencies or external consultants. Our marketing team’s local knowledge and expertise in our key markets have allowed us to develop direct relationships with a broad range of local and regional media providers and purchase media directly, avoiding more costly intermediaries. We have invested in our own creative, production and media execution teams, composed of approximately 110 employees, who are quickly able to adapt our marketing strategy, while also leveraging our extensive data and analytics capabilities for more precise audience targeting. Furthermore, we have developed our own software platform for managing our search optimization capabilities, allowing us to tailor messages effectively for specific target markets and customers.

Proven and Experienced Team

Our management team has significant experience in the travel sector and across a variety of industries in Latin America. Members of our management team have worked at organizations such as Expedia, Kimberly-Clark, LATAM Airlines, McKinsey, Morgan Stanley, PwC and Thales, among others. In addition to our management team, we have an extensive technology team including more than 800 developers. By fostering a distinctive, collaborative and high-performance working culture, we attract software developers with world-class talent and offer an engaging working environment for ongoing career development. We believe we are perceived as a top talent recruiter for IT professionals in Latin America, allowing us to attract the highest quality professionals and specialists dedicated to the enhancement of our platform.

 

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Our Strategy

Our goal is to further expand our leading position, continue to innovate by better serving customer and supplier needs and increase our profitability with the following key strategies:

Continue to Grow and Develop Our Customer Base in Latin America

We believe there are significant opportunities to expand further our customer base in the region and, at the same time, increase our share of total travel spend by our customers. During 2016, approximately four million customers transacted on our platform and 58% of our transactions were with repeat customers. Furthermore, we believe that our personalized customer experience, comprehensive product offering and high-impact marketing, such as online advertising, television, radio and print media will allow us to continue to drive repeat purchases and attract new customers to our platform.

Continue to Enhance Our Product Offerings

We believe that we can grow our business by further tailoring and expanding our product offering to address the needs of new and existing customers. For example, in recent years, we have launched new products, including travel insurance, bus trips, vacation rentals, and our local concierge product, in several of our existing markets. We believe this strategy can also be replicated in additional markets. We are continuing to expand our installment payments plan and add other payment options, such as debit cards and acceptance of multiple credit cards in a single transaction, as well as several market-specific localized payment options, to attract more customers to our platform and improve purchase conversion at checkout.

Increase Cross-Selling

We plan to grow our revenue by further capitalizing on our large scale, high volume traffic and technology to continue to increase cross-selling. We believe there is significant room to grow our packages, hotels and other travel products businesses through focused marketing and cross-selling initiatives such as offering exclusive discounts on related products upon checkout, targeted post-sale emails and personalized in-destination mobile marketing with offers for additional travel products that may be relevant to customers’ initial purchase.

Expand and Deepen Supplier Relationships

We plan to expand our supplier base as well as deepen our relationships with suppliers. We intend to continue to provide access to our broad customer base and offer multiple rate plans and package deals, to drive demand for our suppliers’ products and help them grow their businesses. We will also continue to invest in our software to offer our suppliers tools to better manage their inventory.

Continue to Invest in Our Mobile Offering

We will continue to invest in our mobile platform by launching new mobile features and functionality. Additionally, we will continue to invest in mobile-focused marketing in order to augment our app downloads and mobile conversion, which we believe represents a significant growth opportunity for our business. Through mobile-only rates, personalized packaged products and in-destination targeted marketing through our mobile apps, we offer our customers an attractive range of travel products in an efficient manner. We believe that providing customers with the ability to use the latest mobile technology, such as account recognition, in-app customer service, automated payment options, location-based targeting and highly-targeted push and in-app notifications, will allow us to continue to accelerate our mobile growth.

 

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Focus on Operational Efficiency

We have invested aggressively over the years to scale our operations and support the growth of our business. We intend to continue enhancing the infrastructure and technology that support our platform in order to facilitate the best product offering, provide reliable site performance and ensure high quality customer service by promptly processing requests and frequently monitoring performance.

We also plan to invest in initiatives to promote further automation and improve efficiency, which will simplify our operations and reduce costs. We will continue to define and implement fraud-prevention strategies, and invest in tools to minimize both fraud exposure and legitimate sales rejections. Moreover, we will continue our focus on minimizing fulfillment leakage and costs by improving internal processes and supplier inventory integration, as we believe there is significant opportunity to capture additional growth in these areas.

Opportunistically Pursue Strategic Acquisitions

We may expand our business through opportunistic acquisitions that enable us to enhance our customer offerings, build our marketplace, enter new geographies or enhance our operational infrastructure. We may also consider acquiring additional technology capabilities through alliances and partnerships. We believe our industry and operational experience and our open and collaborative culture will help us to integrate acquired businesses.

 

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Our History and Development

Our business has grown substantially in revenue, products and geographic scope since launching in 1999. The following table shows the timeline of key milestones:

 

1999     

•     Launched site in Argentina

2000     

•     Launched sites in Brazil, Chile, Colombia, Mexico and Uruguay

2001     

•     Launched sites in the United States and Venezuela

2007     

•     Launched site in Peru

2009     

•     Expanded our offering to include hotels

•     Launched sites in Bolivia, Costa Rica, Dominican Republic, Ecuador, Guatemala, Nicaragua, Panama, Paraguay and Puerto Rico

2010     

•     Launched sites in El Salvador and Honduras, reaching our 20th market

•     Cumulative one million customers served

2012     

•     Launched our mobile apps on Android and iOS

•     Expanded offering to include packages, rental cars and cruise products

2013     

•     Reached one million downloads of our mobile app

•     Expanded our offering to include destination services

•     Expanded hotel offering to include vacation rentals

2014     

•     Cumulative 10 million customers served

•     Our mobile app is included in the iTunes Store’s “Best of 2014”

•     Launched travel affiliates program

•     Expanded our offering to include travel insurance

2015     

•     Reached 10 million downloads of our mobile app

•     Completed migration from call center sales to fully online model

•     Deepened strategic partnership with Expedia, including its equity investment in our Company

2016     

•     Awarded “E-commerce Leader in the Tourism Industry in LATAM” by the Latin American E-Commerce Institute

•     Expanded our offering to include our bus product

•     Expanded our destination services offering to include our local concierge product

Our Customers

In 2016 we had approximately four million customers, primarily in Latin America. Our customers are primarily from Latin America traveling domestically within their own country of origin, to other countries in the Latin American region, and outside of Latin America. Most of our customers are traveling for leisure, although we do have some independent business travelers as well.

 

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Our Products

We offer a wide range of travel and travel-related products catering to the needs of Latin Americans traveling domestically within their own country of origin, to other countries in the Latin American region and outside of Latin America. We provide these travelers with the comprehensive tools and information, in multiple languages, that they need to research, plan, book and purchase travel products efficiently. That information includes approximately 8.5 million user-generated reviews in total, 1.9 million of which were submitted in 2016. We organize our business into two segments: (1) Air, which consists of the sale of airline tickets, and (2) Packages, Hotels and Other Travel Products, which consists of travel packages (which can include airline tickets and hotel rooms), as well as stand-alone sales of hotel rooms (including vacation rentals), car rentals, bus tickets, cruise tickets, travel insurance and destination services. We offer our products online through our website and mobile apps, and use data and analytics to personalize the customer experience on our platform, which we believe increases engagement and likelihood of purchase. Currently, approximately 80% of visitors to our platform see a personalized landing page based on geolocation, past search and purchasing history and social network interactions.

The images below provide a sample of our product offering, including search results for different products through our website and through our mobile apps in iOS and Android devices.

 

LOGO   LOGO   LOGO

Air

Through our Air segment, we offer airline tickets, primarily targeted at leisure travelers in Latin America, including travel domestically, to other countries in the region and outside of Latin America. Our Air segment includes airline tickets purchased on a stand-alone basis but excludes airline tickets that are bundled in a package with other non-airline flight products. Our customers booked approximately 4.3 million and 4.4 million transactions in our Air segment using our platform in 2016 and 2015, respectively.

We provide our customers with access to over 200 full service and low-cost airlines, which account for 97% of the market based on tickets sold. We obtain inventory from these airlines either through a GDS or, primarily in the case of low cost airlines, via direct connections to the airlines’ booking systems. We believe our platform provides comprehensive information to our customers in a time efficient and transparent manner. Customers are quickly and easily able to evaluate a broad range of fares and airline combinations. Customers may search for flights based on their preferred travel dates, destinations, number of passengers, number of stops and class of travel, or they may use our more advanced search tool and include additional search parameters. Customers can also filter and sort the results of their search easily according to their preferences.

 

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Packages, Hotels and Other Travel Products

The total number of transactions in our Packages, Hotels and Other Travel Products segment was 3.0 million and 3.3 million in 2016 and 2015, respectively.

Packages

We offer travelers the opportunity to create custom packages by combining two or more travel products such as airline tickets and hotel, airline tickets and car rental or hotel and car rental, and booking them in a single transaction. Combining multiple products into a package with a single quoted price allows us to offer customers lower prices than are available for individual products and also helps us to cross-sell multiple products in a single transaction.

Hotels

Through our platform, customers can search, compare and book reservations at more than 300,000 hotels globally through our direct network and third-party inventory. In addition, since 2013 our hotels offering includes vacation rentals.

Customers may search for hotels based on their destination and preferred dates for check-in and checkout, and may filter and sort our search results easily by selecting star ratings, specific hotel chains and location. Customers can also indicate amenity preferences such as business services, internet access, fitness centers, swimming pools and more. Customers can also view hotel pictures and read hotel reviews from other Despegar customers on our platform. Our platform features approximately 8.5 million user-generated reviews in total, 1.9 million of which were generated in 2016.

As of December 31, 2016, approximately 22,000 of our hotel suppliers in Latin America were directly connected to our booking system. Through these direct connections, our hotel suppliers allocate rooms to us either by managing their room inventory directly on an extranet supported by us, or on an extranet supported by one of our more than 35 third-party channel managers. In 2016, 9.6% of our gross bookings for hotels were attributable to inventory provided to us by Expedia. See “—Material Agreements” and “Certain Relationships and Related Party Transactions” for more information.

We typically do not assume inventory risk as we do not pre-purchase hotel room inventory from our hotel suppliers. Hotel suppliers are paid by one of two methods: “pre-pay” and “pay at destination.” Under the pre-pay model, the customer pays us at the time of booking and we pay the hotel after the customer checks out. Under the pay at destination model, the customer pays the hotel directly at checkout and we either receive our commission from the hotel or from the customer, separate from the amount payable to the hotel, at the time of booking.

Other Travel Products

We also offer other travel products on our platform. We provide our customers access to approximately 900 car rental agencies, more than 130 bus carriers, six cruise carriers, 300 destination services suppliers with more than 7,000 activities, and two travel insurance suppliers. While we offer both pre-pay and pay-at-destination options for car rentals, the other travel products that we offer must be prepaid.

Destination Services: We introduced the sale of destination services in 2013. We offer in-destination services as an opportunity for us to offer attractions, tickets, tours and activities and local concierge services to bundle with other products and as a way to encourage in-destination transactions. The wide array of options offered is intended to suit varying budgets and preferences of potential customers. We booked approximately 275,000 transactions for destination services in 2016.

Car Rentals: We introduced car rentals in 2012. Currently, we offer car rentals worldwide, with a focus in Latin America and the United States. We booked approximately 300,000 transactions for car rentals in 2016.

 

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Cruise Tickets: We introduced the sale of cruise tickets in 2012. Currently, cruise tickets are available to customers in Argentina, Brazil, Chile, Colombia and Mexico. We currently have relationships with six cruise carriers. We booked approximately 12,000 transactions for cruise tickets in 2016.

Travel Insurance: We introduced travel insurance products in 2014. We offer travel insurance products in all of our markets except Venezuela and Costa Rica through two third-party providers in Latin America, Assist Card and Travel Ace Assistance. Customers can choose from a range of coverage options depending on their particular needs, such as medical insurance and lost or damaged baggage. Typically, this product is requested in conjunction with a flight and hotel booking. Prior to confirming and proceeding with the reservation of and payment for a flight or hotel booking or a package booking, our customers are offered the opportunity to purchase travel insurance.

Bus Tickets: We introduced the sale of bus tickets within Latin America in January 2016. Currently, bus tickets are available only in Brazil and Argentina, and we intend to expand our coverage further to major cities in Latin America. We currently have relationships with three suppliers that give us access to more than 130 bus carriers. We booked approximately 26,000 transactions for bus tickets in 2016.

In addition, we sell digital advertising on our platform.

Payment Options

Credit cards are the primary means of payment for products on our platform. We allow for the use of more than one credit card in a single transaction, permitting customers with lower credit limits to make larger purchases. We also offer other payment alternatives including debit cards as well as several localized payment options by market.

In addition, we have established agreements with a wide range of local and regional banks that allow their credit card holders to purchase our travel products via installment purchase plans, which we believe differentiates us from other global travel agencies which either do not offer installment plans or offer installment plans from a more limited selection of financing providers. Local banks look to partner with us because of our scale, access to our online audience and high transaction volume. Credit card customers may choose from a range of installment plan offerings and terms from different financial institutions with which the customer holds or obtains a credit card. Many of these installment plan offerings are interest-free to the customer. Installment plans allow our customers to make larger purchases than they may otherwise be able to make in a single payment. Our agreements with local banks allow us to offer installment payment plans without assuming collection risk from the customer and receive payment in full (provided we choose not to factor such installment payments). When customers make purchases using installment plans, the facilitating bank bears the risk that the customer will make the required installment payments. In all markets except Brazil, we typically receive payment in less than one month after booking. In Brazil, we generally receive payment from the installment financing bank only after each scheduled payment due date from the customer (whether or not the customer makes the scheduled payments to the bank). In some cases, we elect to factor or discount these longer-term Brazilian installment receivables, allowing us to receive the payment of the purchase price more quickly. Approximately 55% of our transactions in 2016 were completed using an installment plan.

Marketing and Affiliates

Marketing

We execute a multi-channel marketing strategy. Through this effort, we have created a long-standing brand that is associated with superior travel products, high quality services and competitive prices in Latin America. We have an experienced in-house marketing team composed of 110 people dedicated to delivering efficient allocation of time and resources across media channels, without relying on outside agencies or consultants. Key elements of our marketing strategy include:

 

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In-house Teams. We have teams dedicated to: audiovisual content generation across online and offline channels; negotiation with media and agencies to control budget; performance trends and market analysis through strong data analytics; and targeted campaign monitoring.

Buy Direct. Through our direct relationships with key media suppliers throughout Latin America, we believe we are able to secure highly competitive rates across the region, without unnecessary interaction with intermediaries.

“Always On” Strategy. We have 24/7 continuity of marketing campaigns through a combination of online, television, radio, print and other channels tailored for every country and market. We run campaigns to drive maximum awareness, and we use a multi-channel approach in our top markets.

Cross-Device Insights and Custom Attribution Model and Bidding Tools. We measure marketing success across all media channels and devices by reconstructing the user’s marketing path across devices and applying our custom attribution model that feeds our optimization strategy. We have also developed proprietary tools to optimize our investment in search engine marketing (“SEM”) campaigns for Google Adwords by tracking sources of traffic and attributing a percentage of conversions to each event in a user’s marketing path.

Focus on Efficient Use of Media. We continuously analyze the minimum frequency needed on each media channel to deliver targeted marketing messages, events and promotions to customers based on the specific demographics of each market.

Promotions and Sales. We focus aggressively on promotions including discounts, holiday campaigns and financing options. Our technology-driven marketing allows us to dynamically optimize promotions on a daily basis. Some of our recurring promotions are included below:

 

LOGO   LOGO   LOGO   LOGO   LOGO   LOGO

Affiliates

We have relationships with a network of 7,500 affiliates, including travel agents, airlines, websites and other third parties such as online and offline retailers, in seven countries across Latin America. Our agreements with these affiliates allows them to access our product inventory directly through our platform or through our application program interface (“API”). In 2016, transactions executed through affiliates accounted for approximately 3% of our total transactions. We believe our affiliate program is attractive because we provide access to a range of travel products that our affiliates otherwise may not be able to access cost-effectively or at all. Our affiliates earn commissions from us depending on country and type of products sold. Furthermore, our affiliate program allows us to expand our footprint in Latin America and distribution network in a cost-effective manner.

Customer Service

Customer experience is a key focus for our business and we believe this is reflected in our strong brand recognition and loyalty throughout Latin America. We emphasize providing personalized support throughout the customer purchase cycle, including automated web-based support and support from live customer service representatives.

The first point of contact for customer service inquiries is our self-service digital platform. Our “My Account” feature works 24/7 and our customers are able to resolve more than 50% of inquiries through our self-service digital platform. We have a team of over 100 IT staff members developing after-sale software to strengthen our digital customer service platform.

 

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In addition to our customer service centers in Brazil and Colombia, we rely on outsourced services to provide 24/7 support to our customers for issues that cannot be resolved through our platform. Our customer service facilities in Brazil are dedicated to our Portuguese-speaking customers, while our customer service facilities in Colombia serve Spanish-speaking customers. Many of our customer service staff at these facilities speak English in addition to Portuguese and/or Spanish. We also have a team of customer service staff dedicated specifically to addressing urgent customer needs, primarily those of customers that are in-destination.

To control expenditures related to customer support, we also outsource certain functions to international call center service providers. These outsourced customer service providers support our internal call center operations and improve our ability to support customers around the world.

We also have implemented comprehensive performance measures to monitor our calls to ensure that our customers receive quality service. In addition, as a part of our customer experience we maintain a database containing customer transactions and user preferences for each customer who has booked services through us in order to provide customized support and offerings in the future. We believe that the design of our existing systems can scale to meet further increases in call volume.

Technology and Data

We use our technology platform to improve the customer experience and optimize the efficiency of our business operations. We have successfully built an innovative technology culture that we believe is unique in Latin America and enables us to attract and retain some of the best talent in the region. We employ more than 800 dedicated technology professionals. We actively recruit and train these highly-skilled technology professionals and many of our current technology managers started in our training program.

Our technology team has adopted a continuous improvement, high-frequency testing approach to our business, aimed at improving both traffic and conversion rates, while maintaining reliability. Our platform is engineered to provide a personalized and secure experience to our customers. We invest heavily in understanding our customers’ behavior and intentions through a combination of detailed behavioral data collection and machine learning algorithms. Our machine learning algorithms also help us detect fraud attempts. We collect, maintain and analyze behavioral data from all the devices our customers are using to interact with our platform. The insights derived from the analysis of this data form the basis of our enhanced conversion strategies. We use email, social media marketing and retargeting campaigns to remind customers of their searches.

We believe our technology can scale to accommodate significantly higher volumes of site traffic, customers, bookings and the overall growth in our business. We routinely test and expand the capacity of our servers so we are prepared to provide our customers with uninterrupted access to our sites during periods with high levels of user traffic, such as when we are offering promotions. Our information technology platform employs a horizontal architecture, which allows us to increase our processing capacity by adding more hardware in parallel with our existing servers. With this structure, we can grow our platform to accommodate the growth of our business with minimal disruption to the operation of our customer-facing platform and without having to replace our existing equipment.

Our system has been designed around an open architecture with a focus on robust reliability to reduce downtime in the event of outages or catastrophic occurrences. Our platform provides 24/7 availability, except during twice-monthly planned maintenance periods. Our system hardware, which we own, is hosted by a third-party data center in Miami, Florida, which also provides redundant communications lines and emergency power backup.

We believe our technology infrastructure is an important asset due to its robustness, cost-effectiveness and scalability. We continuously evaluate, research and develop new services, platforms infrastructure, and software to improve and solidify our technological systems further and provide a reliable, personalized, fast and secure experience to our customers.

 

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Security, Privacy and Anti-Fraud

We are committed to operating a secure online business. We use various security methods in an effort to protect the integrity of our networks and the confidential data collected and stored on our servers. For example, we use firewalls to protect access to our networks and to the servers and databases on which we store confidential data; we restrict access to our network by virtual private network (“VPN”) with two-factor authentication and conduct periodic audits of data access and modifications of our network; and we use password-protected encryption technology to protect our communication channels and sensitive customer data. In addition, we have developed and use internal policies and procedures to protect the personal information of our customers, and we comply with the Payment Card Industry Data Security Standard (“PCI DSS”). To enforce our security framework we have a dedicated cybersecurity team that conducts penetration testing and application security analysis, develops policies and standards, and ensures compliance with those policies and standards.

We believe that issues relating to privacy and the use of personally identifiable information are becoming increasingly important as the internet and its commercial use continue to grow. We have adopted what we believe is a detailed privacy policy that complies with local legal requirements in each of the countries in which we operate and outlines the information that we collect concerning our users and how we use it. Users must acknowledge and expressly agree to this policy when registering with our platform, signing up for our newsletters, or making a purchase.

Although we send marketing communications to our users periodically, we use our best efforts to ensure that we respect users’ communication preferences. For example, when users register with us, they can opt out of receiving marketing e-mails from us. Users can modify their communication preferences at any time in the “My Account” section of our sites.

We only use information about our users for internal purposes in order to improve marketing and promotional efforts and in order to improve our content, product offerings and site layout. We may also disclose information about our users in response to legal requirements. All information is stored on our servers located in Miami, Florida.

Moreover, we are committed to detecting and deterring possible instances of fraudulent transactions before they are completed. The key components of our fraud-prevention strategy include: (1) a dedicated and specialized fraud prevention team that works closely with our IT staff; (2) engagement with key actors in the online travel industry, such as banks and airlines, which strengthens our early-detection capabilities, thereby reducing the exposure period to potential fraud events; and (3) machine learning systems that analyze multiple factors, including intelligence gathered from our industry relationships, to help us adapt better to changing market conditions and detect and address fraudulent transactions. Our in-house team works with third-party vendors, allowing us to leverage best practices and scale quickly.

Competition

We operate in a highly competitive and evolving market. Travelers have a range of options, both online and offline, to research, find, compare, plan and book air, packages, hotels and other travel products.

Our competitors include:

 

    global OTAs with presence in Latin America, such as Booking.com and Expedia and travel metasearch sites;

 

    search websites and apps, such as Google and its travel businesses, and e-commerce and group buying websites and apps;

 

    alternative accommodation and vacation rental businesses, such as Airbnb;

 

    local offline travel agency chains and tour operators, such as CVC Brasil Operadora e Agência de Viagens; and

 

    smaller online travel agencies lacking a pan-regional presence.

 

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In addition, our customers have the option to book travel directly with travel suppliers, including airlines, hotels and other travel service providers via online and offline channels. See “Risk Factors—Risks Related to Our Business—We operate in a highly competitive and evolving market, and pressure from existing and new companies may adversely affect our business and results of operations” for more information.

We believe that the primary competitive factors in the travel industry, in particular as consumers increasingly research, plan and book travel online, are, among other things, brand recognition, price, availability and breadth of choice of travel services and products, customer service, ease of use, fees charged to travelers, accessibility and reliability. We believe our brands, scale, operational and technological capabilities, including our local knowledge and marketing expertise, provide us with a sustainable competitive advantage.

Material Agreements

Expedia Outsourcing Agreement

The hotel and other lodging products that we offer through our platform for all the countries outside Latin America are provided to us exclusively by affiliates of Expedia, Inc. (“Expedia”) pursuant to a lodging outsourcing agreement entered into with Expedia on March 6, 2015 (the “Expedia Outsourcing Agreement”). Under the agreement, Expedia is also the preferred provider to us of hotel and other lodging products in Latin America. Expedia is also one of our shareholders and holds certain rights in that capacity. For further information on our relationships with Expedia, see “Principal and Selling Shareholders” and “Certain Relationships and Related Persons Transactions.”

Expedia makes its hotel products available to us. We are required to reach a threshold of marketing fees (which are defined in the Expedia Outsourcing Agreement as a specified percentage of gross profit received by Expedia from travel bookings made through our platform) equal to $5 million in any six month period, or else we are required to pay Expedia for a portion of the shortfall or Expedia may require us to pay a $125.0 million termination fee. As of December 31, 2016, we have never failed to reach this threshold.

Despegar Outsourcing Agreement

Pursuant to a lodging outsourcing agreement dated August 17, 2016 (the “Despegar Outsourcing Agreement”), Expedia began to offer through its platform our hotel products, on a non-exclusive basis.

Under the Despegar Outsourcing Agreement, we make our hotel products available to certain affiliates of Expedia (each an “Expedia Affiliate” and, together with Expedia, the “Expedia Parties”) and the relevant Expedia Affiliate receives compensation equal to a percentage of the revenue earned by us from the property owner.

Intellectual Property

We regard our intellectual property as critical to our future success and rely on a combination of trademark laws and contractual restrictions to establish and protect our proprietary rights in our products. Our intellectual property includes trademarks and domain names associated with the names “Despegar.com” and “Decolar.com.” To protect our platform and technology, we have entered into confidentiality and invention assignment agreements with our employees and certain contractors and suppliers. Nevertheless, we cannot guarantee that all our intellectual property is fully protected and enforceable vis-à-vis third parties under all applicable laws in Latin America.

In addition, we are the registrar for certain generic Top-Level Domains (“gTLDs”), namely “.hoteles”, “.vuelos” and “.passagens”. The gTLDs “.hoteles” and “.vuelos” have already completed the sunrise period, while “.passagens” is yet to begin the process.

 

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Employees

As of December 31, 2016, we had 2,898 employees. We also contracted with certain third-party providers to support our call center employees. The following tables show a breakdown of our employees as of the end of 2015 and 2016 by category of activity.

 

     Number of Employees as of
December 31,
 

Division/Function

           2016                      2015          

Operations and customer service

     1,161        1,493  

Sales and marketing

     177        194  

Technology and content

     1,010        1,053  

General and administrative(1)

     550        662  
  

 

 

    

 

 

 

Total

     2,898        3,402  
  

 

 

    

 

 

 

 

(1) Includes business development, administration, finance and accounting, legal and human resources.

As of December 31, 2016, 333 of our employees in Argentina, all of our employees in Brazil and all of our employees in Mexico were represented by labor unions. We believe that our relations with our employees are good and we implement a variety of human resources practices, programs and policies that are designed to hire, retain, develop and compensate our employees.

We believe that our employees are among the most knowledgeable in the Latin American internet industry, and they have developed a deep understanding of our business and e-commerce in general.

Our development of IT talent begins with recruiting qualified recent university graduates to our Despegar University High-flying Youth—School of Development,” a three-month training program where we provide young people the opportunity to be trained for a career in the IT field with the best tools and technologies available. At the end of the program, we offer the best candidates a position with our permanent IT staff. We develop our IT talent based on what we refer to as a “70/20/10 methodology”, comprised of 70% work experience, 20% coaching, networks and collaborative working, and 10% “classroom” training through courses and programs. We are committed to promoting from within and, as a result, a significant portion of our personnel has been with the company for several years.

We have attracted and retained outstanding individuals over the years and we strive to bring more talent by hiring individuals with internet-related experience. We believe our future success will depend on our ability to attract and retain capable professionals.

 

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Facilities

The following table shows the location of our significant leased offices and customer service centers, and the term of the leases under which they operate.

 

City, Country

 

Facility

 

Address

  Approximate
Square Meters
    Agreement
Expiration Date
 

Buenos Aires Argentina

  Argentina operation and regional functions   Avenida Corrientes 746     2,040       03/31/2020  

Buenos Aires, Argentina

  Argentina operation and regional functions   Juana Manso 999     4,422       8/31/2021  

La Plata, Buenos Aires Argentina

  Argentina operation   Calle 532, Nbr. 1211     1,500       9/14/2020  

São Paulo, Guarulhos, Brazil

  Brazil operation   Avenida Timóteo Penteado Nbr. 1578     2,792       8/10/2019  

Bogotá, Colombia

  Colombia operation and customer service center   Interior 101, Manzana 15, Carretera 106 Nbr. 15A-25, Free Trade Zone     1,754       2/15/2018 (1) 

Montevideo, Uruguay

  International Hotels, Packages and Other Travel Products operations and Shared service center   Ruta 8 Km. 17,500, local 318, edificio 300, Zonamerica     2,092       9/14/2020  

 

(1) Renews automatically for one-year periods.

We also own two properties: (1) an approximately 2,077 square meter facility at Jujuy 2013 in the Parque Patricios tech district of Buenos Aires, Argentina, which houses part of our Argentina operations including IT support, and (2) an approximately 223 square meter facility on Avenida Francisco de Miranda in Caracas, Venezuela, which houses our Venezuela operations.

Legal and Regulatory

Regulatory

Regulations Related to the Travel Industry

The laws and regulations applicable to the travel industry affect us and our travel suppliers in the jurisdictions in which we operate, the jurisdictions in which our customers reside and the jurisdictions of their destinations. We are also required to be accredited by the International Air Transport Association (“IATA”) in order to promote and sell tickets for airlines connected to IATA.

Brazil

In addition to the standard licenses and permits required for all companies to operate in the travel industry in Brazil, we are subject to a specific registration of tourism providers with the Ministry of Tourism (“CADASTUR”). In Brazil, there are four main norms that govern the activities related to tourism, as well as the enrollment of services providers in the tourism industry: (i) Law No. 11,771/2008, which regulates the National Tourism Policy and defines the responsibilities of the federal government in planning, developing and stimulating the tourism sector; (ii) Decree No. 7,381/2010, which regulates Law No. 11,771/2008; (iii) Ordinance No. 130/2011 from the Ministry of Tourism, which establishes the CADASTUR, the CADASTUR’s consulting committee and regulates other measures; and (iv) Law No. 12,974/2014, which regulates the activities of tourism agencies.

 

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Argentina

As a travel agency in Argentina, Despegar.com.ar must be registered with the Registry of Travel Agents (Registro de Agentes de Viajes) created by Section 5 of Decree No. 2,182/72. The local regulation on commercial tourism activities is comprised of: (i) Law 25,997 and its applicable regulation which governs the development and promotion of tourism in Argentina; (ii) Law 18,829 which defines the regulations applicable to travel agents; (iii) the resolutions issued by the Secretariat of Tourism; and (iv) Law 24,240 as amended, which sets forth the provisions for the protection of consumers.

Regulations that apply to the E-Commerce Industry

We are also subject to a variety of laws, decrees and regulations that affect companies conducting business on the internet in the countries where we operate related to e-commerce, electronic or mobile payments; data collection; data protection; privacy; information requirements for internet providers; taxation (including value added taxes (“VAT”) or sales tax collection obligations); obligations to provide information to certain authorities; and other legislation which also applies to other companies conducting business in general. It is not clear how existing laws in Latin America governing issues such as general commercial activities, property ownership, copyrights and other intellectual property issues, taxation, consumer protection, digital signatures and personal privacy, apply to online businesses. Some of these laws were adopted before the internet was available and, as a result, do not contemplate or address the unique issues of the internet. Due to these areas of legal uncertainty, and the increasing popularity and use of the internet and other online services in our markets, it is possible that new laws and regulations will be adopted with respect to the internet or other online services. These regulations could cover a wide variety of issues, including e-commerce; internet service providers’ responsibility for third-party content hosted in their servers; user privacy; electronic or mobile payments; pricing, content and quality of products and services; taxation (including VAT or sales tax collection obligations, obligation to provide certain information about transactions that occurred through our platform, or about our users); advertising; intellectual property rights; consumer protection and information security. See “Risk Factors—Risks Related to our Business—We process, store and use personal information, card payment information and other consumer data, which subjects us to risks stemming from possible failure to comply with governmental regulation and other legal obligations” and “Risk Factors—Risks Related to our Business—Internet regulation in the countries where we operate is scarce, and several legal issues related to the internet are uncertain” for more information.

Regulations Related to Consumer and Data Protection

We are subject to consumer and data protection laws in every country where we have a website.

Brazil

There are several laws in Brazil dealing with privacy and data protection, including: (i) the Brazilian Federal Constitution, which provides for the protection of individuals’ fundamental and inviolable rights of intimacy/privacy, private life and image; (ii) the Brazilian Civil Code (Law No. 10,406/2002), which reaffirms the Federal Constitution’s provision of fundamental rights, and provides for the right to act against violators in order to cease the violation and seek compensation for suffered damage; (iii) the Consumer Protection and Defense Code (Law No. 8,078/1990), which provides for consumer-related databases, data collection and penalties related therewith; (iv) the Brazilian Internet Act (Law No. 12,965/2014), which establishes principles, guarantees, rights and obligations related to the use of the internet in Brazil; and (v) the Brazilian Internet Act Regulation (Decree No. 8,771/2016), which sets forth security standards to be complied with by internet connection and application providers (online platform operators) when storing personal data.

Brazilian consumer protection authorities and courts take the view that the express consent of the consumer must be obtained before the collection, treatment, sharing and transmission of personal data. With regard to data collection, the Brazilian Internet Act provides that personal data collection, use, storage, sharing, transmission and treatment must be authorized previously and expressly by the individual, consistent with the general privacy

 

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principle set forth by the Federal Constitution and Consumer Defense Code. For the purposes of the Brazilian Internet Act and its regulation, personal data is deemed any data related to an identified or identifiable individual, including identifying numbers, location data or electronic identifiers, when related to an individual.

In addition, Law No. 9,507/1997 regulates privacy requirements and the habeas data process, by which individual citizens can ask a court to issue an order to protect, correct or remove their personal data, and recognizes consumers’ rights to access, correct and update their personal information stored in governmental or public databases. For the purposes of this law, a public database is composed by information that either: (i) is and/or may be transmitted to third parties; or (ii) is not exclusively used by the governmental agency or legal entity generating or managing the information.

As an internet-based retailer, we are also subject to several laws and regulations designed to protect consumer rights—most importantly the Consumer Protection and Defense Code, which regulates commercial practices, product and service liability, strict liability of the supplier of products or services, reversal of the burden of proof to the benefit of consumers, joint and several liability of all companies within the supply chain, abuse of rights in contractual clauses, and advertising and information on products and services offered to the public. The Consumer Protection and Defense Code establishes the legal framework for the protection of consumers, setting out certain basic rights, including the right to clear and accurate information about products and services offered in the consumer market, with correct specification of characteristics, structure, quality and price and the risks they pose. In addition, Executive Decree No. 7.962/13 applies with regards to retaining of service in an online environment. This legislation describes, among others, the rules on disclosure of information, consumer service, payment protection and other procedures for the rendering of online services.

Argentina

In Argentina, we are subject to e-commerce laws such as Resolution No. 104/05 adopted by the Ministry of Economy and the Argentine Consumer Protection Agency, which establishes certain information requirements for internet providers, and Law No. 25,326, as amended, and its corresponding regulations, which mandate the registration of databases with the Data Protection Agency and regulate, among other things, the type of information that can be collected, and how such information can be used.

Moreover, Law No. 24,240, as amended (the “Consumer Protection Law”), sets forth certain rules and principles designed to protect consumers. The Consumer Protection Law was amended on March 12, 2008 by Law No. 26,361 in several respects, including: (i) an increase in the size of the overall group of persons deemed to be consumers, or recipients of the protections of the Consumer Protection Law; (ii) an increase in the maximum penalties applicable to providers that breach the law to AR$5 million, as discussed below, and the granting of power to the administrative authority to require the payment of direct damages by any provider; (iii) requirements that providers pay punitive damages to consumers (which may not exceed AR$5 million); and (iv) regulations regarding the possibility for consumer associations to initiate class actions on behalf of consumer groups. The Argentine Secretary of Commerce, which is part of the Argentine Ministry of Economy, is the national enforcement authority of the Consumer Protection Law, while the Autonomous City of Buenos Aires and the provinces act as local enforcement authorities.

Regulations Related to Taxation

Brazil

In Brazil, between 2011 and 2015, our Brazilian subsidiary was exempt from collection of withholding income tax (“WHT”) on remittances to cover travel expenses of Brazilian individuals abroad, within the parameters established by applicable law. From January 1, 2016 to March 1, 2016, the applicable WHT for payments, credits, delivery, use by or remittance of these amounts to foreign persons was 25%. In February 2016, our Brazilian subsidiary filed a writ of mandamus (a judicial complaint) against the federal tax authority claiming that WHT should not be applicable due to a provision of “non-imposition” contained in the Income Tax Regulations. In March 2016, the court granted our Brazilian subsidiary a preliminary injunction on the writ of

 

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mandamus, which allowed our Brazilian subsidiary to make remittances free of WHT while the preliminary injunction was in place. In December 2016, the court published a decision on the merits of the case, against our Brazilian subsidiary (which terminated the effects of the preliminary injunction). Also in December 2016, our Brazilian subsidiary filed a Motion for Clarification, in an attempt to request the court to issue an opinion on the possible application of tax treaties to allow our Brazilian subsidiary to not collect WHT on the basis of their provisions.

Since March 2, 2016, the former WHT exemption was converted into a WHT imposition of 6% on remittances to cover travel expenses of Brazilian individuals abroad, within the parameters established by applicable law. This reduced WHT rate is effective until December 31, 2019 and we cannot assure you that it will be extended in the future. Our Brazilian subsidiary is currently depositing the relevant amounts before the court in order to guarantee that (i) if the company is not successful in the plea before the court, the applicable WHT will be converted into income of the federal revenue, without the imposition of any fines or interest and (ii) if the company is successful in its plea, the amount corresponding to the WHT will be returned to our Brazilian subsidiary with monetary adjustments.

Argentina

Since 2013 we have been the beneficiary of a tax exemption, applicable until January 30th, 2019, under Buenos Aires Municipal Law No. 2,972, which includes, among others, the turnover tax exemption. This law exempts from the turnover tax (as described below) any revenue directly connected to services performed through software applied to e-commerce that are performed within the designated IT district located in Parque Patricios in the city of Buenos Aires, only when: (i) said entity/person is registered under the Information and Communications Technologies Registry; and (ii) the entity/person keeps or increases the number of employees hired at the time of registration. Agreements executed by registered individuals in order to develop any of the activities promoted will also be exempt from stamp tax when the activities are carried out within or from the district. Because we perform e-commerce activity within and outside the IT district, these exemptions are partially applied. Revenue must be attributed to the IT district (and, thus, considered exempt) using a reasonable parameter.

On December 30, 2016, we applied to register under Argentine National Law No. 25,922, as amended, and its corresponding regulations (the “Software Promotion Law”), which sets forth a promotion regime for the software industry that remains in effect until December 31, 2019. Registration with the National Registry of Software Producers and the Special Registry of Exporters of Services grants significant tax benefits, including (i) the ability to maintain the aggregate federal tax rate in effect at the time of the beneficiary’s registration through December 31, 2019; (ii) the ability to convert up to 70% of certain monthly social security tax (contribution) payments into a tax credit; (iii) exemption from value-added tax withholding or collection regimes; (iv) a 60% reduction in the total amount of corporate income tax as applied to income from the activities of creation, design, development, production, implementation or adjustment (upgrade) of developed software systems and their associated documents; and (v) the exemption of imports by the beneficiaries of goods necessary for software production activities from present or future restriction on currency transfers. Our application is currently pending with the Ministry of Production.

Uruguay and Others

We operate as a free trade zone user of the Zonamerica Free Trade Zone in Montevideo, Uruguay (the “Free Trade Zone”), under Law No. 15,921 and its corresponding regulations. No domestic Uruguayan tax whatsoever applies in the Free Trade Zone, except for social security contributions for any Uruguayan employees. No social security contributions are required for non-Uruguayan employees, so long as they do not exceed 25% of the personnel working in the facility located in the Free Trade Zone. In addition, the inflow of goods and services to the Free Trade Zone, as well as their outflow abroad, are tax exempt. The movement of goods and services into a Free Trade Zone from non-Free Trade Zone Uruguayan territory is treated as an export and therefore also exempt from VAT and the Specific Internal Tax (Impuesto Específico Interno or “IEI”). On the other hand, if goods are

 

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introduced into non-free Uruguayan territory from a Free Trade Zone, the corresponding import tax will apply. Exporting services from a Free Trade Zone to non-Free Trade Zone Uruguayan territory is generally prohibited. However, in 2016, our Uruguay subsidiary located in the Free Trade Zone was authorized by the Ministry of Economy in Uruguay to have limited operations with a related party located in Uruguay. By law, the Uruguayan state is liable for damages if the tax exemptions, benefits and rights of users of Free Zones granted pursuant to the law are not fulfilled during the term of their contracts.

We also receive certain tax benefits, consisting primarily of a reduced income tax rate, as a free trade zone user in Bogotá, Colombia under Decree 2147.

Regulations Related to Foreign Currency and Exchange Rates

There are also laws and regulations that address foreign currency and exchange rates in many of the countries in which we operate. In certain countries where we operate, we need governmental authorization to pay invoices to a foreign supplier or send money abroad due to foreign exchange restrictions. See “Risk Factors—Risks Related to Latin America—We are subject to significant foreign currency exchange controls in certain countries in which we operate.”

Legal Proceedings

From time to time, we are involved in disputes and legal and administrative proceedings that arise in the ordinary course of our business. We are currently engaged in several legal proceedings, including consumer protection, tax, labor and other proceedings. Any claims against us, regardless of whether meritorious, can be time-consuming, result in costly litigation, require significant management time and result in the diversion of significant operational resources.

We have established provisions for such disputes and proceedings in an aggregate amount of $26 million as of December 31, 2016. We record a provision in our balance sheet for losses arising from litigation based on an evaluation of the likelihood of loss by our external and internal legal counsel, the progress of related proceedings, the history of losses in similar cases and the individual analysis of each contingency. We record provisions for contingencies based on probable loss or when so required under accounting rules. We do not reserve provisions for possible and remote losses.

We are currently not a party to any legal, arbitration or administrative proceedings that, in the opinion of our management, is likely to have a material and adverse effect on our business, financial condition or results of operations, other than as set forth below.

Brazil

On June 25, 2014, the National Association of Citizenship and Consumer Defense (“ANADEC”) filed a public civil action against our Brazilian subsidiary to (i) dispute the validity of cancellation clauses which establish a penalty in a percentage higher than 20% of the price paid by the consumer; and (ii) request the return of the amounts paid by all consumers above this percentage. We successfully defended this claim in the trial court and the ANADEC has appealed the decision, which is ongoing. We believe this claim is without merit.

On July 27, 2016, a Brazilian hotel sector association—Forum de Operadores Hoteleiros do Brasil—filed a complaint with the Brazilian Administrative Council for Economic Defence (“CADE”) against us, Booking.com, and Expedia, with respect to parity provisions in supply contracts. In September 2016, we submitted our response to the complaint to CADE. This administrative inquiry before CADE is still ongoing.

Between May and July 2016, Booking.com filed several complaints against us with various public offices: Public Prosecution Office of the State of Rio Grande do Sul, Public Prosecution Office of the State of São Paulo, Consumer Defense Office of the State of Rio de Janeiro, Consumer Defense Office of the State of São Paulo, Consumer Defense Office of the Department of Justice, Consumer Defense Committee of the Legislative

 

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Assembly of the State of Rio de Janeiro and the Public Prosecution Office of the State of Rio de Janeiro. Booking.com alleges that (i) we offered higher prices to Brazilian consumers than those offered to foreign consumers for the same accommodation during the same period of time (“geopricing”) and (ii) we made accommodations unavailable for Brazilian consumers whereas foreign consumers were allowed to book the same accommodations (“geoblocking”). Based on these allegations, Booking is requesting that the public prosecution offices order us to pay penalties and/or to initiate public civil actions against us in order to prevent the alleged practices. We have presented our administrative defenses to all claims and currently the public prosecution offices are collecting evidence. We believe these complaints are without merit.

On October 25, 2016, the National Federation of Hotels, Restaurants, Bars and Similar filed a public civil action against our Brazilian subsidiary with the main purpose of (1) preventing us from increasing the commission percentage charged from the hotels connected to the Federation; (2) requiring us to maintain the current 15% commission percentage with the possibility of adjustment according to an inflation index; (3) requiring us to pay an indemnification to be fixed by the judge and proportional to the alleged violation of rights of the consumers and of the business community; (4) requiring us to pay a penalty of at least 10% of our Brazilian subsidiary’s revenue, after taxes for the last fiscal year, for alleged violation of the economic order; (5) requiring that our directors and/or officers are jointly responsible to pay a fine equivalent to 5% of the penalty imposed on us; (6) preventing us from entering into agreements with public financial institutions or participating in public bids for at least 5 years; (7) obtaining a “recommendation” for the federal tax authority to not allow us to pay any federal taxes by installments or to cancel any tax incentive or public subsidy granted to us; (8) to publish the decision rendered in a newspaper to be determined by the judge for two consecutive days during a 1 to 3 week period; and (9) the offender’s registration under the consumer defense national registry (Cadastro Nacional de Defensa do Consumidor). We believe this claim is without merit; however, this process is still ongoing.

Tax Proceedings

Brazil

In March 2013, São Paulo tax authorities have asserted Brazilian municipal taxes (“Imposto Sobre Serviço”) and fines against our Brazilian subsidiary relating to the period from 2008 to 2011 in an approximate amount of $ 21.5 million, including ordinary taxable services on commissions earned. On April 2, 2013, the Company’s Brazilian subsidiary filed an administrative defense against the authorities’ claim. In a decision published on August 30, 2014, the São Paulo tax authorities ruled against the Brazilian subsidiary upholding the claimed taxes and the fines previously imposed. An appeal to the São Paulo City Administrative Court was filed on September 30, 2014. On December 4, 2015, the Administrative Court ruled against the Brazilian subsidiary upholding the claimed taxes and the fines previously imposed.

Argentina

In April 2013 the Argentine Tax authority (“AFIP”) brought criminal charges against Despegar.com.ar SA´s directors on the grounds of an alleged infringement of Law No. 24,769 (as amended, the “Argentine Criminal Tax Law”) following several customers claims related to lack of invoicing and some assumptions generated on high amounts of intercompany balances on financials. AFIP alleged that Despegar.com.ar SA failed to pay certain amounts related to income tax for fiscal years 2009, 2010 and 2011. The criminal court requested AFIP to prepare and produce tax adjustments for the fiscal years included in the accusation. During the assessment process, AFIP determined a taxable base due to intercompany liabilities without supporting documentation and revenues connected to some functions not recognized according to transfer pricing rules. Despegar.com.ar SA amended the corresponding tax returns and paid the corresponding amounts due. In December 2014, the criminal court concluded that the amounts owed by Despegar.com.ar SA for income tax for the fiscal years under review did not reach the minimum threshold required by the Argentine Criminal Tax Law to allow a criminal prosecution. In March 2015, Despegar.com.ar SA was acquitted and the charges dismissed by the criminal court. Despegar.com.ar SA does not have an outstanding contingency relating to this case.

 

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Corporate Structure

Despegar.com, Corp. is a holding company organized in the British Virgin Islands, which owns, directly or indirectly, all of our operating subsidiaries. The diagram below depicts the organizational structure of our key subsidiaries:

 

LOGO

 

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MANAGEMENT

Board of Directors

Our board of directors consists of eight members. Our memorandum and articles of association authorize us to have nine directors or such other number of directors as is from time to time fixed by resolution of the shareholders. Prior to this offering, we expect that additional directors who are independent in accordance with the criteria established by              will be appointed to the board of directors.

The following table presents the names and ages of the members of our board of directors as of the date of this prospectus.

 

Name

   Age     

Position

Jason Lenga

     43      Chairman, Director

Damián Scokin

     50      Chief Executive Officer, Director

Rodrigo Catunda

     31      Director

Robert Greyber

     47      Director

Nilesh Lakhani

     58      Director

Gary Morrison

     49      Director

Scott Shleifer

     39      Director

Mario Eduardo Vázquez

     81      Director

The following is a brief summary of the business experience of our directors. The current business addresses for our directors is Juana Manso 999, Ciudad Autónoma de Buenos Aires, Argentina (C1107CBR). Each of our directors holds office until his successor has been elected and qualified or appointed, or the earlier of his death, resignation or removal.

Jason Lenga has served as a member of our board of directors and as chairman of our board since April 2015. Mr. Lenga is an Operating Partner at Tiger Global Australia Pty Ltd, which he joined in 2015. Prior to joining Tiger Global, Mr. Lenga was a senior executive at Australian Stock Exchange listed Seek Limited, a leading global online employment marketplace. From December 1999 to June 2015, Mr. Lenga worked at Seek Limited in a variety of senior roles developing Seek’s strategic direction as well as establishing and driving key parts of its business, including the development of the group’s significant international assets. Prior to joining Seek, Mr. Lenga was a solicitor in the mergers and acquisitions practice of Mallesons Stephen Jaques, an Australian commercial law firm. Mr. Lenga also serves on the board of directors of Zhaopin Limited (NYSE: ZPIN). Mr. Lenga received a Bachelor of Laws degree and a Bachelor of Commerce degree from the University of New South Wales in Australia.

Damián Scokin has served as our Chief Executive Officer (“CEO”) since February 2017 and as a member of our board of directors since April 2017. From 2005 to 2015, prior to becoming our CEO, Mr. Scokin held several positions within the LATAM Airlines Group. From 2012 to 2015, Mr. Scokin served as CEO for LATAM’s International Business Unit, where he was in charge of leading the merger and integration process of LAN Airlines, LATAM Airlines Group’s predecessor and the biggest airline in Chile, and TAM Linhas Aereas, one of Brazil leading airlines. Prior to the merger process, Mr. Scokin worked as CEO for the International Business Unit of Lan Airlines in Chile and as CEO for LAN Argentina before that, where he was in charge of the company’s startup and early development in Argentina. Mr. Scokin started his career in 1995 as an associate of Mckinsey & Company in Boston, where he eventually became partner and manager of its Buenos Aires office in 2004. Mr. Scokin holds BAs in Economics and Industrial Engineering from the University of Buenos Aires and an MBA from Harvard Business School.

Rodrigo Catunda has served as a member of our board of directors since January 2017. Mr. Catunda is a Vice President in General Atlantic’s Sao Paulo office, which he joined in September 2011, where he focuses on investments in a variety of industries in Latin America. Mr. Catunda is closely involved with General Atlantic’s

 

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investments in Despegar, Pague Menos, XP Investimentos, Smiles and Ourofino. From January 2007 to August 2011, Mr. Catunda was an investment banking associate at J.P. Morgan in São Paulo and New York, focused in Latin America. Mr. Catunda also serves on the board of XP Investimentos, a Brazilian financial institution. Mr. Catunda received a Bachelor of Science in Business Administration from Fundação Getulio Vargas—FGV in Sao Paulo.

Robert Greyber has served as a member of our board of directors since April 2015. Mr. Greyber has served in various positions at Expedia, Inc. since March 2004, most recently as President of Egencia, the corporate travel division of Expedia, Inc. Mr. Greyber also oversees strategy and operations for Traveldoo, an Expedia, Inc. subsidiary, and a leading global provider of travel & expense management (T&E) technology. Prior to Expedia, Mr. Greyber worked in San Francisco for Scient Corp., a strategy and technology consulting firm, where he led the team that designed and built the initial web and operating infrastructure for Hotwire.com, now a subsidiary of Expedia, Inc. Before that, Greyber worked in investment banking as an investment banking associate at Deutsche Bank and as a Systems Engineer at Electronic Data Systems Corporation. Mr. Greyber received a Master of Business Administration from the University of Chicago Booth School of Business and a Bachelor of Arts in English Literature from the University of Maryland, College Park, with honors.

Nilesh Lakhani has served as a member of our board of directors since October 2012. Mr. Lakhani serves on the board of directors of Netshoes (Cayman) Limited (NYSE: NETS) and, from 2013 to 2014, served on the board of directors of QIWI plc (Nasdaq: QIWI). Mr. Lakhani has been an Operating Partner at Lumia Capital LLC, an emerging markets focused technology venture fund since 2015 and has also held key executive positions with growth companies in the technology, media and financial services industries. From 2010 to 2012, he was the Chief Financial Officer of oDesk Corporation. Prior to that, from 2007 to 2010, he was the Chief Financial Officer of Yandex N.V. (Nasdaq: YNDX). He also served as Chief Financial Officer of CTC Media, Inc. (Nasdaq: CTCM) from 2004 to 2007. Prior to that, Mr. Lakhani was the Chief Financial Officer of Pogo.com, and was Vice President of Global Operations at Electronic Arts after it acquired Pogo.com. Mr. Lakhani also served as senior vice president with Transamerica Corporation from 1991 to 1997, and worked with GE Capital from 1984 to 1991. Mr. Lakhani received a Bachelor of Arts in Economics from the University of Manchester and a Master of Business Administration in Finance from the University of San Francisco.

Gary Morrison has served as a member of our board of directors since April 2015. Mr. Morrison is Vice President and General Manager EMEA and Senior Vice President and Head of Retail Expedia Worldwide of Expedia, Inc., which he joined in 2011. From October 2008 to November 2009, Mr. Morrison served as the Head of Global Sales Operations for Google, Inc.‘s Online Sales Channel. Prior to that, Mr. Morrison held several senior management positions at Motorola Solutions Inc. (NYSE: MSI) in its Mobile Devices division and consulting and engineering roles at General Electric Corporation (NYSE: GE), Booz Allen & Hamilton Inc. (NYSE: BAH) and Schlumberger SA. He also serves on the board of directors for Voyages-sncf.com, a distribution channel of SNCF, and AirAsiaExpedia, a division of Expedia, Inc. Mr. Morrison received a Master of Business Administration from INSEAD and a Masters in Engineering (M. Eng. Distinction) from Leeds University U.K.

Scott Shleifer has served as a member of our board of directors since August 2007. Mr. Shleifer is a Partner at Tiger Global Management, LLC and head of the firm’s public equity business as well as a portfolio manager of the firm’s private equity business. Prior to joining Tiger Global in 2002, Mr. Shleifer was a private equity investor at The Blackstone Group. Mr. Shleifer also serves as a member of the Wharton School’s Undergraduate Executive Board and serves on the board of directors of the Tiger Foundation. Mr. Shleifer received a Bachelor of Science in Economics from the Wharton School at the University of Pennsylvania.

Mario Eduardo Vázquez has served as a member of our board of directors since August 2014. From June 2003 to November 2006, he served as the Chief Executive Officer of Grupo Telefónica in Argentina. Prior to that, Mr. Vázquez worked in auditing for Arthur Andersen for 33 years, including as a partner and general director covering Latin American markets, including Argentina, Chile, Uruguay, and Paraguay. Mr. Vázquez

 

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previously taught as a professor of Auditing at the Economics School of the Universidad de Buenos Aires. Mr. Vázquez also serves on the board of directors and is president of the Audit Committee of Globant S.A. (NYSE: GLOB) and MercadoLibre, Inc. (NYSE:MELI) He has also served as a member of the board of directors of Telefónica Argentina S.A., Telefónica Holding Argentina S.A., Telefónica S.A. (Spain), Banco Santander Rio S.A., Banco Supervielle Societe General S.A., and CMF Banco S.A., and as alternate member of the board of directors of Telefónica de Chile S.A. Mr. Vázquez also previously served as a member of the board of directors and as the president of the Audit Committee of YPF, S.A. (NYSE:YPF) Mr. Vázquez received a Degree in Public Accounting from the Universidad de Buenos Aires.

Executive Officers

The following table lists our current executive officers:

 

Name

   Age     

Position

Damián Scokin

     50      Chief Executive Officer

Michael Doyle

     47      Chief Financial Officer

Juan Pablo Alvarado

     47      General Counsel

Sebastián Mackinnon

     46      Head of Air

Martín Molinari

     45      Head of Packages, Hotels and Other Travel Products

Pablo Montivero Araya

     48      Head of Distribution

The following is a brief summary of the business experience of our executive officers who are not also directors. Unless otherwise indicated, the current business addresses for our executive officers is Juana Manso 999, Ciudad Autónoma de Buenos Aires, Argentina (C1107CBR).

Michael Doyle has served as our Chief Financial Officer (“CFO”) since June 2013. Prior to becoming our CFO, Mr. Doyle was the Chief Financial Officer of eLong, Inc, a formerly Nasdaq-listed, online travel company in China. Mr. Doyle was also the Chief Financial Officer of Expedia Asia Pacific, a division of Expedia, based in Hong Kong and Seattle. Prior to Expedia, Mr. Doyle worked as Chief Financial Officer of Teledesic, a Seattle-based broadband communications company founded by Craig McCaw and Bill Gates. Mr. Doyle started his career as an investment banker at Morgan Stanley & Company in New York and Singapore. While in Singapore, he also worked for the Government of Singapore Investment Corporation, structuring private equity investments in Southeast Asia. Mr. Doyle holds a BA in Finance from Southern Methodist University and an MBA from Harvard Business School.

Juan Pablo Alvarado has served as our General Counsel since August 2015. From December 2014 to July 2015, Mr. Alvarado served as Of Counsel at Estudio Beccar Varela. From 2006 to 2013, Mr. Alvarado served as General Counsel and member of the Executive Committee of El Tejar Limited. From 2001 to 2003, he served in various positions at Mondeléz International, most recently as the Legal Director for the Southern Cone Region in South America. Mr. Alvarado also serves as a member of the board of directors of Asociación Latinoamerica de Internet and served as President of Fundación para la Integración Social Oscar Alvarado, a not-for profit organization. Mr. Alvarado received a high school diploma from Colegio Cardenal Newman, Law Degree from the Universidad Católica Argentina de Derecho and a Master of Laws Degree from Duke University.

Sebastián Mackinnon has served as our Head of Air, with a regional scope, since December 2015. From October 2001 to December 2015, Mr. Mackinnon served in various positions at Diageo plc, an international alcoholic beverages company, mostly recently as General Manager covering Peru, Bolivia and Ecuador. Prior to thank, Mr. Mackinnon held various positions at Mondeléz International and Kimberly-Clark Corporation. Mr. Mackinnon received a high school diploma from Colegio Cardenal Newman, a Degree in Business Administration from the Pontificia Universidad Católica Argentina and a Master of Business Administration from the CEMA University in Buenos Aires.

 

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Martín Molinari has served as our Head of Packages, Hotels and Other Travel Products since March 2017. Prior to that, Mr. Molinari served as our Head of Cross-Selling from March 2013 to March 2017 and as our Mexico Country Manager from August 2005 to February 2013. Prior to that, Mr. Molinari served as General Manager for Iberojet Internacional, a tour operator that is a division of Iberostar Group. Mr. Molinari received a Bachelor’s Degree in Tourism Business Management from the Universidad de Morón. Mr. Molinari is based in Montevideo, Uruguay.

Pablo Montivero Araya has served as our Head of Distribution since February 2015 with responsibilities for overseeing all countries as well as distribution channels and loyalty programs. Prior to joining us, he served in various positions at PepsiCo, Inc., most recently as Senior Vice President and General Manager for PepsiCo Foods South Cone. Mr. Montivero Araya received a Bachelor of Engineering in Industrial Engineering from the Universidad de Buenos Aires and a Master in Business Administration in International Business from the Thunderbird School of Global Management at Arizona State University. Mr. Montivero Araya is based in Montevideo, Uruguay.

Family Relationships

There are no family relationships among any of our directors or executive officers.

Board Committees

Our board of directors will establish the following committees prior to the completion of this offering: an audit committee; a compensation committee; and a corporate governance and nominating committee. The composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until otherwise determined by our board.

Audit Committee

Upon completion of this offering, our audit committee will consist of Mario Eduardo Vázquez, Nilesh Lakhani and                 , with Mr. Vázquez serving as chair. Mr. Vázquez, Mr. Lakhani and                  satisfy the independence requirements of Rule 10A-3 under the Exchange Act. Our board of directors also has determined that Messrs. Vázquez and Lakhani qualify as audit committee financial experts within the meaning of the SEC rules. Our audit committee oversees our accounting and financial reporting processes and the audits of our consolidated financial statements. Our audit committee will be responsible for, among other things:

 

    selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;

 

    regularly reviewing the independence of our independent auditors;

 

    reviewing all related party transactions on an ongoing basis;

 

    discussing the annual audited consolidated financial statements with management and our independent auditors;

 

    annually reviewing and reassessing the adequacy of our audit committee charter;

 

    such other matters that are specifically delegated to our audit committee by our board of directors from time to time;

 

    meeting separately and periodically with management and our internal and independent auditors; and

 

    reporting regularly to our full board of directors.

Compensation Committee

Upon completion of this offering, our compensation committee will consist of                  and             , with                  serving as chair. Our compensation committee assists our board of directors in reviewing and

 

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approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. The compensation committee will be responsible for, among other things:

 

    reviewing the compensation plans, policies and programs adopted by the management;

 

    reviewing and approving the compensation package for our executive officers;

 

    reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; and

 

    reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate Governance and Nominating Committee

Upon completion of this offering, our corporate governance and nominating committee will consist of                  and                 , with                  serving as chair. The corporate governance and nominating committee will be responsible for, among other things:

 

    assisting our board of directors in identifying prospective director nominees and recommending nominees to the board of directors;

 

    overseeing the evaluation of the board of directors and management;

 

    reviewing developments in corporate governance practices and developing and recommending a set of corporate governance guidelines; and

 

    recommending members for each committee of our board of directors.

Equity Incentive Plans

Our board of directors has adopted two stock option plans, namely, the 2015 Stock Option Plan (the “2015 Plan”) and 2016 Stock Option Plan (the “2016 Plan” and, together with the 2015 Plan, the “Plans”). The terms of the 2015 Plan and the 2016 Plan are substantially similar. The purpose of these plans is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, outside directors and consultants, and to promote the success of our business. Our board of directors believes that our Company’s long term success is dependent upon our ability to attract and retain superior individuals who, by virtue of their ability and qualifications, make important contributions to our business.

On March 6, 2015, we granted 90,626 RSUs under the 2015 Plan. Each RSU represents the right to receive one ordinary share. We will not issue any additional awards under the 2015 Plan to our employees.

We have reserved an aggregate of 4,000,000 of our ordinary shares for issuance under the 2016 Plan, of which 3,175,000 were issuable upon the exercise of outstanding options as of May 3, 2017.

Administration. The Plans are administered by our board of directors or a committee designated by our board of directors constituted to comply with applicable laws. In each case, our board of directors or the committee it designates will determine the provisions, terms and conditions of each award.

Eligibility. Only employees, outside directors and consultants are eligible for the grant of non-incentive stock options (“NSOs”), and, in the case of the 2015 Plan, the direct award or sale of shares or RSUs. Only employees are eligible for the grant of incentive stock options (“ISOs”). The term “option” as used in this section refers to both NSOs and ISOs.

 

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Moreover, a person who owns more than 10% of the total combined voting power of all classes of our outstanding share capital is not eligible for ISO grants unless (i) the exercise price is at least 110% of the fair market value of a share on the date of the grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the date of the grant.

Vesting Schedule. Options and RSUs may be subject to vesting requirements, as set forth in the applicable award agreement. In the case of the currently outstanding RSUs, two vesting requirements must be satisfied on or before the expiration date in order for the ordinary shares subject to the award to vest: (i) a time-based service requirement where a portion of the RSUs vest in each of three years from the grant date, provided that the recipient remains in continuous service through each applicable date and (ii) a requirement that the Company completes an initial public offering or change of control event (the “Liquidity Event Requirement”). If the Liquidity Event Requirement is triggered by an initial public offering, it will be deemed satisfied upon the earliest of (i) the 181st day following the initial public offering; (ii) the March 15th following the year in which the initial public offering occurs, or (iii) the expiration date. The options granted under the 2016 Plan also feature both (i) a time-based service requirement, by which vesting occurs in installments over five years and (ii) a Liquidity Event Requirement. In the case of the options granted under the 2016 Plan, if the Liquidity Event Requirement is triggered by an initial public offering then it will be deemed satisfied upon the earliest of (i) the 181st day following the initial public offering and (ii) the day immediately preceding the expiration date. In addition, in the case of options granted under the 2016 Plan to our Chief Executive Officer and his direct reports, if the optionee is subject to an involuntary termination without cause within 12 months after a change of control event occurs, then his or her options immediately vest and become exercisable with respect to all then-unvested shares upon such termination, and the time-based service requirement is deemed to have been satisfied with respect to all shares subject to those options.

Award Agreement. Awards granted under the Plans are evidenced by an award agreement providing for the number of ordinary shares subject to the award, and the terms and conditions of the award.

Transfer Restrictions. Options and RSUs may not be transferred other than by will or the laws of succession or by gift or domestic relations order to an immediate family member of the optionee or, in the case of options under the 2016 Plan, a trust established by the optionee for the benefit of the optionee and/or one or more of the optionee’s immediate family, and are exercisable during the lifetime of the optionee only by the optionee or by the optionee’s guardian or legal representative.

Exercise of Awards. The term of RSUs and options may not exceed ten years from the date of grant. The consideration to be paid for our ordinary shares upon exercise of an option will be determined by the stock option plan administrator and may include cash or cash equivalents, a promissory note, ordinary shares, delivery of an irrevocable direction to a securities broker appointed by us to sell the shares and deliver all or part of the proceeds to us, consideration received by us under a cashless exercise program implemented by us, or any other form of payment permitted by the laws of the British Virgin Islands. No cash consideration is required of the recipient in connection with the grant of the RSUs.

Termination of Awards. Where the option agreement permits the exercise of the options granted for a certain period of time following the recipient’s termination of service with us, or the recipient’s disability or death, the options will terminate to the extent not exercised on the last day of the specified period or the last day of the original term of the options, whichever occurs first. Unvested RSUs are forfeited to us upon the recipient’s termination of service with us.

Third-Party Acquisition. If a third-party acquires us through the purchase of all or substantially all of our assets, a merger or other business combination, all outstanding options will be treated in the manner described in the definitive transaction agreement (or, in the event the transaction does not entail a definitive agreement to which we are party, in the manner determined by our board of directors in its capacity as administrator of the Plans, with such determination having final and binding effect on all parties), which agreement or determination need not treat all options (or all portions of an option) in an identical manner.

 

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Amendment, Suspension or Termination. Our board of directors has the authority to amend, suspend or terminate the Plans at any time and for any reason, without shareholder approval. However, any amendment that (i) increases the number of shares available for issuance under the Plans (except as an adjustment of shares) or (ii) materially changes the class of persons who are eligible for the grant of ISOs, requires the approval of our shareholders within twelve months of the amendment date. Unless terminated earlier, the Plans will terminate automatically ten years from the later of (i) the date when the Plan was adopted or (ii) the date when our board of directors approved the most recent increase in the number of shares reserved for issuance that was also approved by our shareholders.

Compensation of Directors and Executive Officers

For the years ended December 31, 2016 and 2015, the aggregate compensation to the officers and independent members of our board of directors amounted to $4,418,091 and $1,538,406, respectively. We did not pay any compensation to the remaining directors in 2016 and 2015, and did not pay any other cash compensation or benefits in kind to our directors in 2016 and 2015. Our officers receive comparable benefits generally provided to our employees, such as pension, retirement and health insurance coverage, with some variations with regard to company car benefits and levels of health insurance coverage. For information regarding share options and RSUs granted to our current officers and directors, see “—Equity Incentive Plans.”

 

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PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information regarding the beneficial ownership of our ordinary shares by (1) each person known to us to beneficially own more than 5% of any class of our outstanding voting securities, (2) each of our directors and executive officers and (3) all of our directors and executive officers as a group.

Applicable percentage ownership is based on 58,518,679 ordinary shares outstanding as of May 3, 2017, In computing the number of ordinary shares beneficially owned by a person or entity and the percentage ownership of that person or entity, we deemed to be outstanding all ordinary shares subject to options or RSUs held by that person or entity that are currently exercisable or that will become exercisable or vested, as applicable, within 60 days of May 3, 2017. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person or entity. Unless otherwise indicated, the address of each beneficial owner listed in the table below is Juana Manso 999, Ciudad Autónoma de Buenos Aires, Argentina (C1107CBR).

 

     Prior to the Offering     

After the
Offering
Assuming
Underwriters’
Option is Not
Exercised

    

After the
Offering
Assuming
Underwriters’
Option is
Exercised in
Full

    

Ordinary
Shares

Being

Offered

  

Ordinary

Shares

Subject to
Option

Name of Beneficial Owner

   Number      %     

Number

   %     

Number

   %     

Number

  

Number

5% Shareholders and Selling Shareholders

                       

Tiger Global(1)

     33,560,192        57.3                    

Expedia, Inc.(2)

     9,590,623        16.4                    

General Atlantic
Partners(3)

     3,175,223        5.4                    

Directors and Executive Officers:

                       

Rodrigo Catunda(4)

     —          —                      

Robert Greyber

     —          —                      

Nilesh Lakhani(5)

     7,929        *                    

Jason Lenga(6)

     —          —                      

Gary Morrison

     —          —                      

Scott Shleifer(1)

     33,560,192        57.3                    

Damián Scokin(7)

     —          —                      

Mario Eduardo Vázquez

     —          —                      

Juan Pablo Alvarado(8)

     —          —                      

Michael Doyle(9)

     —          —                      

Sebastián Mackinnon(10)

     —          —                      

Martín Molinari(11)

     164,631        *                    

Pablo Montivero Araya(12)

     —          —                      

Directors and executive officers as a group (13 persons)

     33,732,752        57.6                    

 

(*) Represents beneficial ownership of less than 1%.

(1) Consists of ordinary shares held by Tiger Global Private Investment Partners IV, L.P. (“PIP IV”), Tiger Global Investments, L.P. (together with PIP IV, “Tiger Global”), and other affiliates of Tiger Global Management, LLC. Tiger Global Management, LLC is controlled by Chase Coleman, Scott Shleifer and Lee Fixel. The business address for each of these entities and individuals is c/o Tiger Global Management, LLC, 9 West 57th Street, 35th Floor, New York, NY 10019.
(2) Consists of ordinary shares held by Expedia, Inc. (“Expedia”), a Washington corporation, a direct wholly owned subsidiary of Expedia, Inc., a Delaware corporation. The principal business address for Expedia is 333 108th Avenue NE, Bellevue, WA 98004.

 

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(3) Consists of (i) 2,977,640 ordinary shares held by General Atlantic Partners (Bermuda) II, L.P (“GAP BII”); (ii) 154,697 ordinary shares held by GAP Coinvestments III, LLC (“GAPCO III”); (iii) 29,687 ordinary shares held by GAP Coinvestments IV, LLC (“GAPCO IV”); (iii) 6,756 ordinary shares held by GAP Coinvestments CDA, L.P. (“GAPCO CDA”); and (v) 6,443 ordinary shares held by GAPCO GmbH & Co. KG (“GAPCO KG” and, together with GAP BII, GAPCO III, GAPCO IV and GAPCO CDA, the “GA Funds”). The general partner of GAP BII is General Atlantic GenPar (Bermuda), L.P. (“GA GenPar Bermuda”). GAP (Bermuda) Limited (“GAP Bermuda”) is the general partner of GA GenPar Bermuda. General Atlantic LLC (“GA LLC”) is the managing member of GAPCO III, GAPCO IV and the general partner of GAPCO CDA. The general partner of GAPCO KG is GAPCO Management GmbH (“GAPCO Management”). The Managing Directors of GA LLC (the “GA Managing Directors”) are also the directors and voting shareholders of GAP Bermuda. The GA Managing Directors control the voting and investment decisions with respect to securities held by GAPCO KG and GAPCO Management. The GA Managing Directors are William E. Ford, John Bernstein, J. Frank Brown, Gabriel Caillaux, Andrew Crawford, Alexander Crisses, Steven A. Denning, Mark F. Dzialga, Martin Escobari, Aaron Goldman, David C. Hodgson, Rene M. Kern, Jonathan Korngold, Christopher G. Lanning, Anton J. Levy, Thomas J. Murphy, Sandeep Naik, Joern Nikolay, Andrew C. Pearson, Shantanu Rastogi, David A. Rosenstein, E. Graves Tompkins, N. Robbert Vorhoff, Ke Wei, and Eric (Chi) Zhang. The GA Managing Directors may be deemed to share voting and dispositive control with respect to shares and interests held by the GA Funds. Each of the Managing Directors of GA LLC disclaims beneficial ownership of the ordinary shares held by the GA Funds except to the extent each has a pecuniary interest therein. GAP BII, GA GenPar Bermuda , GAP Bermuda, GAPCO KG, GAPCO Management, GAPCO CDA, GAPCO III, GAPCO IV, and GA LLC (collectively, the “GA Group”) are a “group” within the meaning of Rule 13d-5 of the Securities Exchange Act of 1934, as amended. The principal business address of the foregoing General Atlantic entities other than GAPCO KG, GAPCO Management, GAP BII, GA GenPar Bermuda and GAP Bermuda is c/o General Atlantic Service Company, LLC, 55 East 52nd Street, 33rd Floor, New York, NY 10055. The principal business address of GAPCO KG and GAPCO Management is c/o General Atlantic GmbH, Maximilianstrasse 35b, 80359 Munich, Germany. The mailing address of GAP BII, GA GenPar Bermuda and GAP Bermuda is Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.
(4) Mr. Catunda is a Vice President in General Atlantic’s São Paulo office. Mr. Catunda is not deemed to share voting or dispositive control over the shares held by the GA Funds listed in footnote (3) above. Mr. Catunda disclaims beneficial ownership of such shares.
(5) Consists of 7,929 ordinary shares held by Mr. Lakhani, a member of our board of directors.
(6) Mr. Lenga is an Operating Partner at Tiger Global Australia Pty Ltd. Mr. Lenga is not deemed to share voting or dispositive control over the shares held by Tiger Global listed in footnote (1) above. Mr. Lenga disclaims beneficial ownership of such shares.
(7) Does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Scokin was granted 400,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Scokin remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. See “Management—Equity Incentive Plans.” Mr. Scokin is our Chief Executive Officer and a director.
(8)

Does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Alvarado was granted 100,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Alvarado remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be

 

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  deemed satisfied upon the 181st day following the date of this offering. See “Management – Equity Incentive Plans.” Mr. Alvarado is our General Counsel.
(9) Does not reflect any shares that may be issued upon settlement of outstanding RSUs, none of which will be exercisable within 60 days of May 3, 2017. In March 2015, Mr. Doyle was granted 90,626 RSUs, (i) 40,626 of which vested on January 1, 2016; (ii) 20,000 of which vested on January 1, 2017; (iii) 20,000 of which will vest on January 1, 2018; and (iv) 10,000 of which will vest on July 1, 2018, in each case provided that Mr. Doyle remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Restricted Stock Unit Award dated March 6, 2015). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. In addition, does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Doyle was granted 200,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Doyle remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. See “Management—Equity Incentive Plans.” Mr. Doyle is our Chief Financial Officer.
(10) Does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Mackinnon was granted 200,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Mackinnon remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. See “Management – Equity Incentive Plans.” Mr. Mackinnon is our Head of Air.
(11) Consists of (i) 114,631 ordinary shares held of record by Ioannis S.A. and (ii) 50,000 ordinary shares held of record by Busmont S.A. Mr. Molinari has sole voting and dispositive control over such shares and directly or indirectly owns 100% of the share capital of both Ioannis S.A. and of Busmont S.A. Does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Molinari was granted 200,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Molinari remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. See “Management—Equity Incentive Plans.” Mr. Molinari is Head of Packages, Hotels and Other Travel Products.
(12) Does not reflect any shares that may be issued upon settlement of outstanding options, none of which will be exercisable within 60 days of May 3, 2017. In March 2017, Mr. Montivero Araya was granted 200,000 options (i) 5% of which will vest on December 1, 2017; (ii) 10% of which will vest on December 1, 2018; (iii) 15% of which will vest on December 1, 2019; (iv) 20% of which will vest on December 1, 2020; (v) 25% of which will vest on December 1, 2021 and (vi) 25% of which will vest on December 1, 2022, in each case provided that Mr. Montivero Araya remains in continuous service as an employee, director or consultant of the Company through each applicable date and subject to the satisfaction of the Liquidity Event Requirement (as defined in the Notice of Stock Option Grant dated March 17, 2017). The Liquidity Event Requirement will be deemed satisfied upon the 181st day following the date of this offering. See “Management—Equity Incentive Plans.” Mr. Montivero Araya is our Head of Packages, Hotels and Other Travel Products.

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Related Person Transactions in Connection with the Expedia Investment

Our predecessor, Decolar.com, Inc., issued the following promissory notes to Tiger Global and its affiliates, on an interest-free basis: $10.0 million on August 26, 2013 with a maturity of nine years, $15.0 million on November 8, 2013 with a maturity of nine years, and $25.0 million on February 6, 2015 with a maturity of seven years.

On March 6, 2015, Expedia purchased 9,590,623 shares of common stock (the “2015 Expedia Shares”) from our predecessor, Decolar.com, Inc., representing 16.4% of its capital stock, for an aggregate purchase price of $270.0 million. Decolar.com, Inc. used $50.0 million of the proceeds to repay the promissory notes to Tiger Global and its affiliates in full and $45.0 million to repurchase 1,598,434 shares of its common stock from certain stockholders, including key management personnel and entities affiliated with key management personnel.

In connection with Expedia’s investment in March 2015, we entered into certain amended shareholder arrangements that will terminate in accordance with their terms upon completion of this offering, except as set forth in the Shareholders Agreement (as defined below).

Relationship with Expedia

Expedia Outsourcing Agreement

We entered into the Expedia Outsourcing Agreement with affiliates of Expedia on March 6, 2015. Expedia is the beneficial owner of 16.4% of our ordinary shares outstanding as of May 3, 2017.

All hotel and other lodging products that we offer through our platform for all countries outside Latin America are provided to us exclusively by Expedia pursuant to the Expedia Outsourcing Agreement. Under the agreement, Expedia is also the preferred provider to us of hotel and other lodging products in Latin America. Expedia makes its hotel and other lodging products available to us. We are required to reach a threshold of marketing fees (which are defined in the Expedia Outsourcing Agreement as a specified percentage of gross profit received by Expedia from travel bookings made through our platform) equal to $5 million in any six-month period, or else we are required to pay Expedia for a portion of the shortfall or Expedia may require us to pay a $125 million termination fee. As of December 31, 2016, we have never failed to reach this threshold.

We receive a marketing fee for each booking using rates and availability provided by Expedia through our platform based on the compensation that Expedia is entitled to receive from the relevant property owner. For 2016, marketing fees paid by Expedia to us under the Expedia Outsourcing Agreement, net of fees we paid to Expedia under the Despegar Outsourcing Agreement (described below), amounted to $27 million, which represented 6.6% of our revenue for the year. From time to time, the Expedia Outsourcing Agreement has been supplemented by one-time incentives paid to us for reaching certain booking targets during a specified time period.

As of December 31, 2016, our receivables from Expedia under the Expedia Outsourcing Agreement, net of our payables under the Despegar Outsourcing Agreement, were $2.2 million.

The term of the Expedia Outsourcing Agreement automatically renews annually unless terminated in certain cases, including, (1) by mutual consent or by a party in the case of a material breach by the other party (with a $125.0 million termination payment if terminated by Expedia due to our breach or our failure to meet certain minimum booking levels), (2) unilaterally by us without cause after March 6, 2022 upon payment to Expedia of a $125.0 million termination payment, and (3) unilaterally by Expedia in the event of a change of control of our Company (defined as the sale, lease or transfer of all or substantially all of our asses to or acquisition of more

 

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than 50% of voting or economic power in our Company or any parent of our Company by, an entity in the consumer or corporate travel industry or an internet-enabled provider of travel search or information services). Unilateral termination of the Expedia Outsourcing Agreement by us as described in (2) above, in addition to triggering the termination payment, also gives Expedia the right to sell the 2015 Expedia Shares back to us for fair market value under the Shareholders Agreement described below.

We may also terminate the agreement if Expedia ceases to hold all of the ordinary shares that were acquired by Expedia pursuant to the stock subscription agreement dated as of March 3, 2015, by and among us, Expedia and certain other shareholders, unless the disposition of those shares was (1) approved by a majority of members of our Board of Directors that were not designated by Expedia, (2) involuntary or (3) the result of an action taken by us or any of our affiliates.

The foregoing description of the Expedia Outsourcing Agreement is qualified in its entirety by reference to the Expedia Outsourcing Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Despegar Outsourcing Agreement

We entered into the Despegar Outsourcing Agreement with certain affiliates of Expedia on August 17, 2016. Under the Despegar Outsourcing Agreement, we are required to make our hotel products available to certain affiliates of Expedia. The relevant Expedia Affiliate receives compensation equal to a percentage of the revenue earned by us from the property owner.

The agreement has a three-year term that automatically renews for one-year periods, unless either party elects not to renew. We are required to indemnify the Expedia and/or its affiliates for losses derived from end user claims. However, if during any contract year Expedia and/or its affiliates suffers losses derived from end user claims exceeding 1% of the annual aggregate room price of the bookings made by the Company during such year, we may terminate the agreement.

The foregoing description of the Despegar Outsourcing Agreement is qualified in its entirety by reference to the Despegar Outsourcing Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

Shareholders Agreement

In connection with this offering, we intend to enter into a new shareholders agreement (the “Shareholders Agreement”) with (1) Tiger Global Private Investment Partners IV, L.P., Tiger Global Investments, L.P., The Scott Shleifer 2011 Descendants’ Trust pursuant to an agreement dated as of January 20, 2011 and LFX Trust under an agreement dated as of January 26, 2011 (together, the “Tiger Global Shareholders”), (2) Alejandro Tamer, Mariano Fiori, Roberto Souviron, Martin Rastellino and Christian Vilate (together, the “Management Shareholders”); (3) SC US GF V HOLDINGS, LTD., SCGE FUND, L.P., SCHF (M) PV, L.P. (together, the “Sequoia Shareholders”), Insight Venture Partners VII, LP, Insight Venture Partners VII (CoInvestors), LP, Insight Venture Partners (Cayman) VII LP, Insight Venture Partners (Delaware) VII LP (together, the “Insight Shareholders”), Accel Growth Fund II L.P., Accel Growth Fund II Strategic Partners L.P., Accel Growth Fund 2012 Investors L.L.C. (together, the “Accel Shareholders”), General Atlantic Partners (Bermuda) II, L.P., GAPCO GmbH & Co. KG, GAP Coinvestments CDA, L.P., GAP Coinvestments III, LLC, GAP Coinvestments IV, LLC (together, the “General Atlantic Shareholders” and, together, with the Sequoia Shareholders, the Insight Shareholders and the Accel Shareholders, the “Other Investor Shareholders”); and (4) Expedia (together, with the Tiger Global Shareholders, the Management Shareholders and the Other Investor Shareholders, the “Principal Shareholders”). The Shareholders Agreement will provide Expedia and the Tiger Global Shareholders with the rights and obligations described below.

 

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Expedia Preemptive Rights

As long as Expedia beneficially owns at least 5% of our share capital (calculated on a fully-diluted basis), it has preemptive rights to purchase newly issued shares to maintain its percentage ownership in all future offerings by us of our shares or of securities convertible into, or exchangeable or exercisable for, any of our shares, including the ordinary shares to be issued and sold in this offering, subject to certain limited exceptions.

Expedia Standstill

For three years from the date of this offering, Expedia and its affiliates are prohibited from acquiring more than 35% of the voting or economic power of our outstanding shares, except by a tender offer, exchange offer or other offer for all of the outstanding shares, directly or indirectly, in which case they are only permitted to consummate such offer if it would result in their owning more than 75% of the voting or economic power of our outstanding shares entitled to vote in the election of our board of directors. In addition, if after this offering (1) we enter into a definitive agreement providing for a Liquidation Event (as defined in the Shareholders Agreement), (2) a tender or exchange offer which if consummated would constitute a Liquidation Event is made (by a person other than Expedia) for our securities and our board of directors either accepts such offer or fails to recommend that our shareholders reject such offer within ten business days, or (3) our board of directors resolves to engage in a formal process which is intended to result in a transaction which, if consummated, would constitute a Liquidation Event, then, notwithstanding the above restriction, with respect to clauses (1) and (2), Expedia is entitled to make an offer for and acquire our shares in a transaction for at least as many shares or equivalent as contemplated in the relevant Liquidation Event, and, with respect to clause (3), Expedia is entitled to participate in such process on the same terms and conditions as the other participants.

Expedia Put Right

We are required to buy back from Expedia, or in certain circumstances facilitate the sale of, the 2015 Expedia shares for fair market value, if we exercise our right to terminate the Expedia Outsourcing Agreement on or after March 6, 2022 and make the required termination payment of $125.0 million to Expedia in connection therewith. The procedures for determining fair market value of the 2015 Expedia Shares depend upon whether we are a public company with securities traded on a recognized securities exchange. If we complete the underwritten initial public offering described in this prospectus and we remain a public company with securities traded on a recognized securities exchange at the time we receive notice that Expedia is exercising its put right, then we are required to (1) use our best efforts to prepare and file with the SEC a registration statement covering the 2015 Expedia Shares, (2) request, in conjunction with Expedia, quotes from five internationally-recognized underwriting banks for a firm and fully underwritten sale of the 2015 Expedia Shares and (3) assist Expedia in its sale of the 2015 Expedia Shares on a recognized securities exchange or market or otherwise. If the 2015 Expedia Shares cannot be sold in this manner, we are required to purchase the 2015 Expedia Shares at the highest quoted price then available from the aforementioned underwriting banks. If we are no longer a public company with securities traded on a recognized securities exchange, fair market value will be a price agreed upon by the Company and Expedia or, if the parties cannot agree, a price determined through the assistance of third-party valuation experts.

Expedia Non-Solicitation Restriction

Expedia is also prohibited from soliciting certain of our employees, and vice versa, until one year after Expedia beneficially owns less than 10% of our share capital. A similar non-solicitation covenant applies during the term of the Expedia Outsourcing Agreement.

Expedia Director Business Opportunities

Subject to applicable confidentiality obligations, directors who have or currently serve as directors, officers, employees or agents of Expedia (the “Expedia Directors”) are not precluded from referring potential business opportunities in which we could have an interest to Expedia. If the Expedia Directors do so, we would be

 

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considered to have renounced our interest in such opportunity, unless the opportunity in question was presented to the director solely in his or her capacity as our director or for our benefit, in which case it can only be referred to Expedia if a majority of our board of directors (excluding the Expedia Directors) has formally declined the opportunity pursuant to a resolution.

Expedia Director Potential Conflicts of Interest

The Expedia Directors may be excluded from the relevant portion of any board or committee meeting relating to any transaction, agreement or arrangement with respect to which (1) Expedia or any of its affiliates is a counterparty or has a material economic interest in the counterparty or (2) in the reasonable opinion of a majority of the members of the board that are not designated or nominated by, or employed by, Expedia or any of its affiliates, there would exist a conflict of interest between the interests of Expedia or its affiliates, on the one hand, and our interests, on the other (conflict of interest is defined for such purpose as a specific material economic or competitive interest of Expedia or any of its affiliates in a potential transaction, agreement or arrangement of the Company would be reasonably likely to materially impair the independence or objectivity of the Expedia Directors in the discharge of their responsibilities and duties to the Company, in light of their affiliation to Expedia).

Registration Rights

The Tiger Global Shareholders and Expedia are each entitled to two demand registrations as long as such holder owns 5% or more of our outstanding ordinary shares (calculated on a fully-diluted basis). Moreover, any other party to our Shareholders Agreement that owns 10% or more our outstanding ordinary shares (calculated on a fully-diluted basis) will also be entitled to two demand registrations. We will also be required to effect up to two registrations on Form F-3 in any twelve-month period, upon the request of any such shareholders that own 10% or more of our outstanding ordinary shares (calculated on a fully-diluted basis). The Shareholders Agreement will also provide the shareholders party thereto with customary piggyback registration rights. Moreover, we are required to pay certain expenses relating to such registrations and indemnify such shareholders against certain liabilities that may arise under the Securities Act. In addition, as previously described, we may also be required to facilitate the sale by Expedia of the 2015 Expedia Shares.

Restrictions on Transactions and Transfers to Specified Industry Participants

Until three years from the date of this offering, and pursuant to the terms of the Shareholders Agreement and the Expedia Lodging Outsourcing Agreement, we will have certain restrictions to conduct business with, and to have our shares owned by, certain specified entities that conduct business in the travel industry, and certain of their future businesses. These restrictions may terminate early, upon termination of the Expedia Lodging Outsourcing Agreement under certain circumstances.

However, these restrictions cease to apply if the Expedia Outsourcing Agreement has been validly terminated in accordance with its terms, except if such termination was due to a failure by us to meet our minimum bookings requirements or a material breach by us, in which case these restrictions will continue to apply until the earliest of (1) the third anniversary of this offering, (2) the seventh anniversary of the Expedia Outsourcing Agreement (provided that we make the required termination payment of $125.0 million), (3) Expedia selling the 2015 Expedia Shares in a manner that would give rise to our right to terminate the Expedia Outsourcing Agreement if such agreement were still in effect; or (4) a material and uncured breach by Expedia of its agreement not to acquire more than 35% of our shares within three years of this offering except by means of a tender offer, exchange offer or other offer that if consummated would result in Expedia being the beneficial owner of more than 75% of the voting or economic power of our outstanding share capital entitled to vote in the election of the board of directors.

The foregoing description of the Shareholders Agreement and the rights contained therein is qualified in its entirety by reference to the Shareholders Agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part.

 

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Statement of Policy Regarding Transactions with Related Persons

Prior to the completion of this offering, our board of directors will adopt a written statement of policy regarding transactions with related persons, which we refer to as our “related person policy.” Our related person policy requires that a “related person” (as defined as in paragraph (a) of Item 404 of Regulation S-K) must promptly disclose to our general counsel any “related person transaction” (defined as any transaction that is anticipated would be reportable by us under Item 404(a) of Regulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The head of compliance will then promptly communicate that information to our board of directors. No related person transaction will be executed without the approval or ratification of our board of directors. It is our policy that directors interested in a related person transaction will recuse themselves from any vote of a related person transaction in which they have an interest. Our policy does not specify the standards to be applied by directors in determining whether or not to approve or ratify a related person transaction and we accordingly anticipate that these determinations will be made in accordance with principles of the laws of the BVI generally applicable to directors of a BVI company.

 

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DESCRIPTION OF OUR SHARE CAPITAL

General

We are a BVI business company incorporated with limited liability and our affairs are governed by the provisions of our memorandum and articles of association, as amended and restated from time to time, and by the provisions of applicable BVI law, including the BVI Business Companies Act, 2004 (the “BVI Act”).

Our company number in the BVI is 1936519. As provided in regulation 4 of our memorandum of association, subject to BVI law, we have full capacity to carry on or undertake any business or activity, do any act or enter into any transaction and, for such purposes, full rights, powers and privileges. Our registered office is at Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands and our registered agent is Conyers Corporate Services (BVI) Limited of Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands.

The transfer agent and registrar for our ordinary shares is Conyers Corporate Services (BVI) Limited, which maintains the register of members of the Company at Wickhams Cay 1, PO Box 3140, Road Town, Tortola, British Virgin Islands VG1110.

As of the date of this prospectus, our memorandum and articles of association authorize the issuance of up to 75,000,000 ordinary shares of a single class without par value. Upon the completion of this offering,                ordinary shares will be issued, fully paid and outstanding.

The maximum number of ordinary shares that we are authorized to issue may be changed by resolution of shareholders or a resolution of directors amending our memorandum and articles of association. Ordinary shares may be issued from time to time by resolution of the directors for such consideration and on such terms and conditions as the board of directors may determine.

Our ordinary shares will be listed on     under the symbol “DESP.”

Initial settlement of our ordinary shares will take place on the closing date of this offering through The Depository Trust Company (“DTC”) in accordance with customary settlement procedures for equity securities. Each person owning ordinary shares held through DTC must rely on the procedures thereof and on institutions that have accounts therewith to exercise any rights of a holder of ordinary shares. Persons wishing to obtain certificates for their ordinary shares must make arrangements with DTC.

The following is a summary of the material provisions of our share capital and our memorandum and articles of association. This discussion does not purport to be complete and is qualified in its entirety by reference to our memorandum and articles of association. The form of our memorandum and articles of association will be filed as an exhibit to the registration statement of which this prospectus forms a part.

Ordinary Shares

The following summarizes the rights of holders of our ordinary shares:

 

    each holder of ordinary shares is entitled to one vote per share on all matters to be voted on by shareholders generally, including the election of directors;

 

    there are no cumulative voting rights;

 

    the holders of our ordinary shares are entitled to dividends and other distributions as may be declared from time to time by our board of directors out of funds legally available for that purpose, if any; and

 

    upon our liquidation, dissolution or winding up, the holders of the ordinary shares will be entitled to the distribution of all of our assets remaining available for distribution after satisfaction of all our liabilities.

 

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Limitation on Liability and Indemnification Matters

Under BVI law, each of our directors, in performing his or her functions, is required to act honestly and in good faith with a view to our best interests and exercise the care, diligence and skill that a reasonably prudent director would exercise in comparable circumstances.

Our memorandum and articles of association provide that we shall indemnify our directors and officers and anyone serving at our request as a director of another entity against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings or suits. We may pay any expenses, including legal fees, incurred by any such person in defending any legal, administrative or investigative proceedings in advance of the final disposition of the proceedings. If a person to be indemnified has been successful in defense of any proceedings referred to above, the director is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the director or officer in connection with the proceedings.

We may purchase and maintain insurance in relation to any of our directors, officers, employees, agents or liquidators against any liability asserted against them and incurred by them in that capacity, whether or not we have or would have had the power to indemnify them against the liability as provided in our memorandum and articles of association.

Shareholders’ Meetings and Consents

The following summarizes certain relevant provisions of BVI laws and our articles of association in relation to our shareholders’ meetings:

 

    our board of directors may convene meetings of shareholders at such times and in such manner and places within or outside the BVI as the directors designate;

 

    upon the written request of shareholders entitled to exercise 30 percent or more of the voting rights in respect of the matter for which the meeting is requested, the directors are required to convene a meeting of the shareholders. Any such request must state the proposed purpose of the meeting;

 

    not less than ten days’ and no more than sixty days’ notice of a meeting of shareholders must be given to those shareholders whose names on the date the notice is given appear as shareholders in the register of members of our company and are entitled to vote at the meeting;

 

    a shareholder may be represented at a meeting of shareholders by a proxy who may speak and vote on behalf of the shareholder;

 

    a meeting of shareholders is duly constituted if, at the commencement of the meeting, there are present in person or by proxy the holders of the majority of the issued and outstanding shares of the Company and entitled to vote;

 

    if a quorum is not present, the shareholders entitled to vote and present in person or by proxy shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. If the adjournment is for more than thirty days a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting;

 

    a resolution of shareholders is valid (i) if approved at a duly constituted and quorate meeting of members by the affirmative vote of the simple majority in interest of those members present at the meeting and entitled to vote and voting on the resolution or (ii) a resolution consented to in writing by members holding a simple majority of the votes of all those members entitled to vote thereon; and

 

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    any action required or permitted to be taken at any meeting of the shareholders may be taken without a meeting, without prior notice to the Company or any other shareholder and without a vote, if a consent in writing setting forth the action so taken, is signed in a manner permitted by law by the holders of outstanding shares having not less than the number of votes that would be necessary to authorise or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

We expect that the first meeting of shareholders following this offering will be held in    .

Differences in Corporate Law

We were incorporated under, and are governed by, the laws of the BVI. Set forth below is a summary of some of the differences between provisions of the BVI Act applicable to us and the laws applicable to companies incorporated in the State of Delaware in the United States and their shareholders.

Director’s Fiduciary Duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling stockholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

BVI law provides that every director of a BVI company in exercising his powers or performing his duties shall act honestly and in good faith and in what the director believes to be in the best interests of the company. Additionally, the director shall exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances taking into account the nature of the company, the nature of the decision and the position of the director and his responsibilities. In addition, BVI law provides that a director shall exercise his powers as a director for a proper purpose and shall not act, or agree to the company acting, in a manner that contravenes BVI law or the memorandum association or articles of association of the company.

Amendment of Governing Documents

Under Delaware corporate law, with very limited exceptions, a vote of the shareholders is required to amend the certificate of incorporation. In addition, Delaware corporate law provides that shareholders have the right to amend the bylaws, and the certificate of incorporation also may confer on the directors the right to amend the bylaws. Our memorandum of association may be amended by a resolution of shareholders or directors, subject to certain restrictions.

Written Consent of Directors

Under Delaware corporate law, directors may act by written consent only on the basis of a unanimous vote. Under our articles of association, a resolution of our directors in writing shall be valid only if consented to by all directors or by all members of a committee of directors, as the case may be. Our articles of association allow any action required or permitted to be taken at a meeting of the board of directors to be taken by written resolution with unanimous consent required from all directors.

 

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Written Consent of Shareholders

Under Delaware corporate law, unless otherwise provided in the certificate of incorporation, any action to be taken at any annual or special meeting of shareholders of a corporation may be taken by written consent of the holders of outstanding stock having not less than the minimum number of votes that would be necessary to take that action at a meeting at which all shareholders entitled to vote were present and voted. As permitted by BVI law, shareholders’ consents need only a majority in interest of shareholders signing to take effect. Our memorandum and articles of association provide that shareholders may approve corporate matters by way of a resolution consented to at a meeting of shareholders or in writing by a majority of shareholders entitled to vote thereon.

Shareholder Proposals

Under Delaware corporate law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings. BVI law and our memorandum and articles of association provide that our directors shall call a meeting of the shareholders if requested in writing to do so by shareholders entitled to exercise at least 30% of the voting rights in respect of the matter for which the meeting is requested. Any such request must state the proposed purpose of the meeting.

Sale of Assets

Under Delaware corporate law, a vote of the shareholders is required to approve the sale of assets only when all or substantially all assets are being sold. In the BVI, unless otherwise provided in the memorandum and articles of association, shareholder approval is required when more than 50% of the company’s total assets by value are being disposed of or sold if not made in the usual or regular course of the business carried out by the company. Under our memorandum and articles of association, the directors may by resolution of directors sell, transfer, lease, exchange or otherwise dispose of the assets of the Company without the sale, transfer, lease, exchange or other disposition being authorised by a resolution of the shareholders.

Dissolution; Winding Up

Under Delaware corporate law, unless the board of directors approves the proposal to dissolve, dissolution must be approved in writing by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware corporate law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. As permitted by BVI law and our memorandum and articles of association, we may be voluntarily liquidated under Part XII of the BVI Act by resolution of directors and resolution of shareholders if we have no liabilities or we are able to pay our debts as they fall due and value of the Company’s assets equals or exceeds its liabilities.

Redemption of Shares

Under Delaware corporate law, any stock may be made subject to redemption by the corporation at its option, at the option of the holders of that stock or upon the happening of a specified event, provided shares with full voting power remain outstanding. The stock may be made redeemable for cash, property or rights, as specified in the certificate of incorporation or in the resolution of the board of directors providing for the issue of the stock. As permitted by BVI law and our memorandum and articles of association, shares may be repurchased, redeemed or otherwise acquired by us. However, the consent of the shareholder whose shares are to be repurchased, redeemed or otherwise acquired must be obtained, except as described under “Compulsory Acquisition” below.

 

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Compulsory Acquisition

Under Delaware General Corporation Law §253, in a process known as a “short form” merger, a corporation that owns at least 90% of the outstanding shares of each class of stock of another corporation may either merge the other corporation into itself and assume all of its obligations or merge itself into the other corporation by executing, acknowledging and filing with the Delaware Secretary of State a certificate of such ownership and merger setting forth a copy of the resolution of its board of directors authorizing such merger. If the parent corporation is a Delaware corporation that is not the surviving corporation, the merger also must be approved by a majority of the outstanding stock of the parent corporation. If the parent corporation does not own all of the stock of the subsidiary corporation immediately prior to the merger, the minority shareholders of the subsidiary corporation party to the merger may have appraisal rights as set forth in §262 of the Delaware General Corporation Law.

Under the BVI Act, subject to any limitations in a company’s memorandum or articles, members holding 90% of the votes of the outstanding shares entitled to vote, and members holding 90% of the votes of the outstanding shares of each class of shares entitled to vote, may give a written instruction to the company directing the company to redeem the shares held by the remaining members. Upon receipt of such written instruction, the company shall redeem the shares specified in the written instruction, irrespective of whether or not the shares are by their terms redeemable. The company shall give written notice to each member whose shares are to be redeemed stating the redemption price and the manner in which the redemption is to be effected. A member whose shares are to be so redeemed is entitled to dissent from such redemption, and to be paid the fair value of his shares, as described under “Shareholders’ Rights under British Virgin Islands Law Generally” below.

Variation of Rights of Shares

Under Delaware corporate law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of that class, unless the certificate of incorporation provides otherwise. As permitted by BVI law we may vary the rights attached to any class of shares only with the consent in writing of holders of not less than a simple majority of the issued shares of that class.

Removal of Directors

Under Delaware corporate law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Our memorandum and articles of association provide that directors may be removed at any time, with or without cause, by a resolution of shareholders.

Mergers

Under Delaware corporate law, one or more constituent corporations may merge into and become part of another constituent corporation in a process known as a merger. A Delaware corporation may merge with a foreign corporation as long as the law of the foreign jurisdiction permits such a merger. To effect a merger under Delaware General Corporation Law §251, an agreement of merger must be properly adopted and the agreement of merger or a certificate of merger must be filed with the Delaware Secretary of State. In order to be properly adopted, the agreement of merger must be adopted by the board of directors of each constituent corporation by a resolution or unanimous written consent. In addition, the agreement of merger generally must be approved at a meeting of stockholders of each constituent corporation by a majority of the outstanding stock of the corporation entitled to vote, unless the certificate of incorporation provides for a supermajority vote. In general, the surviving corporation assumes all of the assets and liabilities of the disappearing corporation or corporations as a result of the merger.

Under the BVI Act, two or more BVI companies may merge or consolidate in accordance with the statutory provisions. A merger means the merging of two or more constituent companies into one of the constituent

 

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companies, and a consolidation means the uniting of two or more constituent companies into a new company. In order to merge or consolidate, the directors of each constituent BVI company must approve a written plan of merger or consolidation which must be authorized by a resolution of shareholders. One or more BVI companies may also merge or consolidate with one or more companies incorporated under the laws of jurisdictions outside the BVI, if the merger or consolidation is permitted by the laws of the jurisdictions in which the companies incorporated outside the BVI are incorporated. In respect of such a merger or consolidation a BVI company is required to comply with the provisions of the BVI Act and a company incorporated outside the BVI is required to comply with the laws of its jurisdiction of incorporation.

Shareholders of BVI companies not otherwise entitled to vote on the merger or consolidation may still acquire the right to vote if the plan of merger or consolidation contains any provision which, if proposed as an amendment to the memorandum association or articles of association, would entitle them to vote as a class or series on the proposed amendment. In any event, all shareholders must be given a copy of the plan of merger or consolidation irrespective of whether they are entitled to vote at the meeting or consent to the written resolution to approve the plan of merger or consolidation.

Inspection of Books and Records

Under Delaware corporate law, any shareholder of a corporation may for any proper purpose inspect or make copies of the corporation’s stock ledger, list of shareholders and other books and records. Under BVI law, members of the general public, on payment of a nominal fee, can obtain copies of the public records of a company available at the office of the BVI Registrar of Corporate Affairs which will include the company’s certificate of incorporation, its memorandum and articles of association (with any amendments) and records of license fees paid to date and will also disclose any articles of dissolution, articles of merger and a register of charges if the company has elected to file such a register.

A shareholder of a BVI company is entitled, on giving written notice to the company, to inspect:

 

  (1) the memorandum and articles;

 

  (2) the register of members;

 

  (3) the register of directors;

 

  (4) the minutes of meetings and resolutions of members and of those classes of members of which he or she is a member; and

 

  (5) to make copies of or take extracts from the documents and records referred to in (1) to (4) above.

However, subject to the memorandum and articles, the directors may, if they are satisfied that it would be contrary to the company’s interests to allow a member to inspect any document, or part of a document, specified in (b), (c) or (d) above, refuse to permit the member to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from the records.

Where a company fails or refuses to permit a member to inspect a document or permits a member to inspect a document subject to limitations, that member may apply to the court for an order that he should be permitted to inspect the document or to inspect the document without limitation.

A company is required to keep at the office of its registered agent the memorandum and articles of the company; the register of members maintained or a copy of the register of members; the register of directors or a copy of the register of directors; and copies of all notices and other documents filed by the company in the previous ten years.

Where a company keeps a copy of the register of members or the register of directors at the office of its registered agent, it is required to notify any changes to the originals of such registers to the registered agent, in writing, within 15 days of any change; and to provide the registered agent with a written record of the physical

 

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address of the place or places at which the original register of members or the original register of directors is kept. Where the place at which the original register of members or the original register of directors is changed, the company is required to provide the registered agent with the physical address of the new location of the records within fourteen days of the change of location.

A company is also required to keep at the office of its registered agent or at such other place or places, within or outside the BVI, as the directors determine the minutes of meetings and resolutions of members and of classes of members; and the minutes of meetings and resolutions of directors and committees of directors. If such records are kept at a place other than at the office of the company’s registered agent, the company is required to provide the registered agent with a written record of the physical address of the place or places at which the records are kept and to notify the registered agent, within 14 days, of the physical address of any new location where such records may be kept.

Conflict of Interest

Under Delaware corporate law, a contract between a corporation and a director or officer, or between a corporation and any other organization in which a director or officer has a financial interest, is not void as long as the material facts as to the director’s or officer’s relationship or interest are disclosed or known and either a majority of the disinterested directors authorizes the contract in good faith or the shareholders vote in good faith to approve the contract. Nor will any such contract be void if it is fair to the corporation when it is authorized, approved or ratified by the board of directors, a committee or the shareholders.

The BVI Act provides that a director shall, forthwith after becoming aware that he is interested in a transaction entered into or to be entered into by the company, disclose that interest to the board of directors of the company. The failure of a director to disclose that interest does not affect the validity of a transaction entered into by the director or the company, so long as the director’s interest was disclosed to the board prior to the company’s entry into the transaction or was not required to be disclosed because the transaction is between the company and the director himself and is otherwise in the ordinary course of business and on usual terms and conditions.

Under our memorandum and articles, certain interests of the directors have been deemed to have been disclosed to our board of directors. In particular, directors appointed by the Tiger Global Shareholders and the General Atlantic Shareholders are associated with funds and entities respectively affiliated with those entities and all portfolio companies in which they invest. Similarly, all directors appointed by Expedia are associated with Expedia and its affiliates.

As permitted by BVI law and our memorandum and articles of association, a director interested in a particular transaction may generally vote on it, attend meetings at which it is considered and sign documents on our behalf which relate to the transaction, or do any other thing in his capacity as director that relates to the transaction. However, under our memorandum and articles there is an exception relating to any transaction, agreement or arrangement with respect to which (i) Expedia is a counterparty or has a material economic interest in the counterparty or (ii) in the reasonable opinion of a majority of the members of our board that are not designated or nominated by, or employed by, Expedia, there would exist a conflict of interest (as defined in our memorandum and articles of association) between the interests of Expedia, on the one hand, and that of the Company, on the other hand. In such circumstances, subject to certain conditions, the directors appointed by Expedia may be excluded from the relevant portion of the board or committee meeting.

Our memorandum and articles also contain an acknowledgment that the Company and its affiliates may engage in the same, similar or related lines of business as those engaged in by Expedia and that the Company may have an interest in the same areas of business opportunity as Expedia. Our memorandum and articles provide that, to the fullest extent permitted by law but subject to compliance with any confidentiality obligations owed to the Company, directors of the Company appointed by Expedia may (without any liability or any duty to account for profits) refer potential business opportunities to Expedia (and shall have no obligation to refer such

 

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potential business opportunities to the Company) which may pursue them without any restriction or liability, unless the potential business opportunity was presented or offered to the director solely in his or her capacity as a director of the Company or for the benefit of the Company. Furthermore, even a potential business opportunity presented or offered to a director appointed by Expedia solely in his or her capacity as a director of the Company or for the benefit of the Company may be referred to and pursued by Expedia in the event our board of directors (excluding the directors appointed by Expedia) declines to pursue such an opportunity.

Transactions with Interested Shareholders

Delaware corporate law contains a business combination statute applicable to Delaware public corporations whereby, unless the corporation has specifically elected not to be governed by that statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that the person becomes an interested shareholder. An interested shareholder generally is a person or group who or that owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which the shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction that resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware public corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

BVI law has no comparable provision. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although BVI law does not regulate transactions between a company and its significant shareholders, it does provide that transactions by the Company must be entered into bona fide in the best interests of the company and not with the effect of oppressing or constituting a fraud on the minority shareholders.

Independent Directors

There are no provisions under Delaware corporate law or under the BVI Act that require a majority of our directors to be independent.

Cumulative Voting

Under Delaware corporate law, cumulative voting for elections of directors is not permitted unless the company’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions to cumulative voting under the laws of the British Virgin Islands, but our memorandum of association and articles of association do not provide for cumulative voting.

Shareholders’ Rights under British Virgin Islands Law Generally

The BVI Act provides for remedies which may be available to shareholders. Where a company incorporated under the BVI Act or any of its directors engages in, or proposes to engage in, conduct that contravenes the BVI Act or the company’s memorandum and articles of association, the BVI courts can issue a restraining or compliance order. Shareholders cannot also bring derivative, personal and representative actions under certain circumstances. The traditional English basis for members’ remedies has also been incorporated into the BVI Act: where a shareholder of a company considers that the affairs of the company have been, are being or are likely to be conducted in a manner likely to be oppressive, unfairly discriminating or unfairly prejudicial to him, he may apply to the court for an order based on such conduct.

 

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Any shareholder of a company may apply to court for the appointment of a liquidator of the company and the court may appoint a liquidator of the company if it is of the opinion that it is just and equitable to do so.

The BVI Act provides that any shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from any of the following: (1) a merger, if the company is a constituent company, unless the company is the surviving company and the member continues to hold the same or similar shares; (2) a consolidation, if the company is a constituent company; (3) any sale, transfer, lease, exchange or other disposition of more than 50% in value of the assets or business of the company if not made in the usual or regular course of the business carried on by the company but not including (a) a disposition pursuant to an order of the court having jurisdiction in the matter, (b) a disposition for money on terms requiring all or substantially all net proceeds to be distributed to the shareholders in accordance with their respective interest within one year after the date of disposition, or (c) a transfer pursuant to the power of the directors to transfer assets for the protection thereof; (4) a redemption of 10% or fewer of the issued shares of the company required by the holders of 90% or more of the shares of the company pursuant to the terms of the BVI Act; and (5) an arrangement, if permitted by the court.

 

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for our ordinary shares. We cannot predict the effect, if any, future sales of ordinary shares, or the availability for future sale of ordinary shares, will have on the market price of our ordinary shares prevailing from time to time. The sale of substantial amounts of our ordinary shares in the public market, or the perception that such sales could occur, could harm the prevailing market price of our ordinary shares.

Upon completion of this offering we will have a total of              ordinary shares outstanding. The ordinary shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act by persons other than our “affiliates.” Under the Securities Act, an “affiliate” of an issuer is a person that directly or indirectly controls, is controlled by or is under common control with that issuer.

Registration Rights

Upon completion of this offering, we will enter into a new Shareholders Agreement under which the Tiger Global Shareholders and Expedia are each entitled to two demand registrations as long as such holder owns 5% or more of our outstanding ordinary shares. Moreover, any other party to our existing Shareholders Agreement that owns 10% or more our outstanding ordinary shares will also be entitled to two demand registrations. In addition, we will be required to effect up to two registrations on Form F-3 in any twelve-month period, upon the request of any such shareholders that own 10% or more of our outstanding ordinary shares. The Shareholders Agreement will also provide the shareholders party thereto with customary piggyback registration rights. Moreover, we are required to pay certain expenses relating to such registrations and indemnify such shareholders against certain liabilities that may arise under the Securities Act. See “Certain Relationships and Related Person Transactions—Registration Rights.”

Lock-Up Agreements

We have agreed, subject to enumerated exceptions, that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any of our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ordinary shares, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus. Our executive officers, directors and substantially all of our existing shareholders have agreed, subject to enumerated exceptions, that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any of our ordinary shares or securities convertible into or exchangeable or exercisable for any of our ordinary shares, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our ordinary shares, whether any of these transactions are to be settled by delivery of our ordinary shares or other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. for a period of 180 days after the date of this prospectus.

Rule 144

In general, under Rule 144 a person (or persons whose shares are aggregated), including any person who may be deemed our affiliate, is entitled to sell within any three-month period a number of restricted securities that does not exceed the greater of 1% of the then outstanding ordinary shares and the average weekly trading volume during the four calendar weeks preceding each such sale, provided that at least six months has elapsed since such ordinary shares were acquired from us or any affiliate of ours and certain manner of sale, notice requirements and requirements as to availability of current public information about us are satisfied. Any person

 

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who is deemed to be our affiliate must comply with the provisions of Rule 144 (other than the six-month holding period requirement) in order to sell ordinary shares which are not restricted securities (such as ordinary shares acquired by affiliates either in this offering or through purchases in the open market following this offering). In addition, a person who is not our affiliate, and who has not been our affiliate at any time during the 90 days preceding any sale, is entitled to sell ordinary shares without regard to the foregoing limitations, provided that at least one year has elapsed since the ordinary shares were acquired from us or any affiliate of ours.

 

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TAXATION

The following summary of the material BVI and U.S. federal income tax consequences of the acquisition, ownership and disposition of our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local and other tax laws.

British Virgin Islands Tax Considerations

We are not liable to pay any form of taxation in the BVI and all dividends, interests, rents, royalties, compensations and other amounts paid by us to persons who are not persons resident in the BVI are exempt from all forms of taxation in the BVI and any capital gains realized with respect to any shares, debt obligations, or other securities of ours by persons who are not persons resident in the BVI are exempt from all forms of taxation in the BVI. The BVI is not party to any double tax treaties that are applicable to any payments made to or by us.

No estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not persons resident in the BVI with respect to any shares, debt obligation or other securities of ours.

Subject to the payment of stamp duty on the acquisition of property in the BVI by us (and in respect of certain transactions in respect of the shares, debt obligations or other securities of BVI incorporated companies owning land in the BVI), all instruments relating to transfers of property to or by us and all instruments relating to transactions in respect of the shares, debt obligations or other securities of ours and all instruments relating to other transactions relating to our business are exempt from payment of stamp duty in the BVI.

There are currently no withholding taxes or exchange control regulations in the BVI applicable to us or our shareholders.

U.S. Federal Income Taxation

The following is a summary of certain material U.S. federal income and, in the case of a non-U.S. holder (as defined below), estate tax consequences of the purchase, ownership and disposition of our ordinary shares as of the date hereof. This summary deals only with our ordinary shares that are held as capital assets within the meaning of Section 1221 of the Code (generally, for investment purposes) by a beneficial owner.

As used herein, a “U.S. holder” means a beneficial owner of our ordinary shares that is, for U.S. federal income tax purposes, any of the following:

 

    an individual citizen or resident of the United States;

 

    a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

As used herein, the term “non-U.S. holder” means a beneficial owner of our ordinary shares (other than a partnership or other pass-through entity for U.S. federal income tax purposes) that is not a U.S. holder.

 

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This summary is based upon provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and regulations, rulings and judicial decisions as of the date hereof. Those authorities may be changed, perhaps retroactively, so as to result in U.S. federal income and estate tax consequences different from those summarized below.

This discussion does not represent a detailed description of the U.S. federal income tax consequences applicable to you if you are subject to special treatment under the U.S. federal income tax laws, including if you are:

 

    a dealer in securities or currencies;

 

    a financial institution;

 

    a regulated investment company;

 

    a real estate investment trust;

 

    an insurance company;

 

    a tax-exempt organization;

 

    a person holding our ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle;

 

    a trader in securities that has elected the mark-to-market method of accounting for your securities;

 

    a person liable for alternative minimum tax;

 

    a partnership or other pass-through entity for U.S. federal income tax purposes;

 

    a U.S. holder whose “functional currency” is not the dollar;

 

    a “controlled foreign corporation”;

 

    a “passive foreign investment company”; or

 

    a U.S. expatriate.

If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ordinary shares, you should consult your tax advisors.

Notwithstanding our corporate reincorporation in the BVI, under Section 7874 of the Code, the Company will be treated for U.S. federal tax purposes as a U.S. corporation and, among other consequences, is subject to U.S. federal income tax on its worldwide income. This discussion assumes that Section 7874 of the Code continues to apply to treat us as a U.S. corporation for all purposes under the Code. If, for some reason (e.g., future repeal of Section 7874 of the Code), we were no longer treated as a U.S. corporation under the Code, the U.S. federal income tax consequences described herein could be materially and adversely affected.

This discussion does not contain a detailed description of all the U.S. federal income and estate tax consequences to you in light of your particular circumstances and does not address the Medicare tax on net investment income or the effects of any state, local or non-U.S. tax laws. If you are considering the purchase of our ordinary shares, you should consult your own tax advisors concerning the particular U.S. federal income and estate tax consequences to you of the purchase, ownership and disposition of our ordinary shares, as well as the consequences to you arising under other U.S. federal tax laws and the laws of any other taxing jurisdiction.

 

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Consequences to U.S. Holders

Dividends

In the event that we make a distribution of cash or other property (other than certain pro rata distributions of our stock) in respect of our ordinary shares, the distribution generally will be treated as a dividend for U.S. federal income tax purposes to the extent it is paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Any portion of a distribution that exceeds our current and accumulated earnings and profits generally will be treated first as a tax-free return of capital, causing a reduction in the adjusted tax basis of a U.S. holder’s ordinary shares, and to the extent the amount of the distribution exceeds a U.S. holder’s adjusted tax basis in our ordinary shares, the excess will be treated as gain from the disposition of our ordinary shares (the tax treatment of which is discussed below under “— Gain on Disposition of Ordinary Shares”). Subject to certain holding period and other requirements, (a) any dividends received by a U.S. holder that is a corporation will be eligible for the dividends received deduction and (b) any dividends received by a non-corporate U.S. holder (including an individual) will be eligible for the reduced tax rates that apply to “qualified dividend income.”

The amount of any dividend paid in foreign currency will equal the dollar value of the foreign currency received calculated by reference to the exchange rate in effect on the date the dividend is actually or constructively received by a U.S. holder, regardless of whether the foreign currency is converted into dollars. If the foreign currency received as a dividend is converted into dollars on the date it is received, a U.S. holder generally will not be required to recognize foreign currency gain or loss in respect of the dividend income. If the foreign currency received as a dividend is not converted into dollars on the date of receipt, a U.S. holder will have a basis in the foreign currency equal to its dollar value on the date of receipt. Any gain or loss realized on a subsequent conversion or other disposition of the foreign currency will be treated as U.S. source ordinary income or loss.

Gain on Disposition of Ordinary Shares

U.S. holders of our ordinary shares will recognize capital gain or loss on any sale, exchange, or other taxable disposition of our ordinary shares in an amount equal to the difference between the amount realized for the ordinary shares and the U.S. holder’s tax basis in the ordinary shares. Such gain or loss generally will be long-term capital gain or loss if the ordinary shares have been held for more than one year. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Consequences to Non-U.S. Holders

Dividends

The rules applicable to non-U.S. holders for determining the extent to which distributions on our ordinary shares, if any, constitute dividends for U.S. federal income tax purposes are the same as for U.S. holders. See “—Consequences to U.S. Holders—Dividends.”

Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a U.S. permanent establishment) are not subject to the withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

 

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A non-U.S. holder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to provide the applicable withholding agent with a properly executed Internal Revenue Service (“IRS”) Form W-BEN or Form W-8BEN-E (or other applicable form) certifying under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if our ordinary shares are held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable U.S. Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals.

A non-U.S. holder eligible for a reduced rate of U.S. federal withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

Gain on Disposition of Ordinary Shares

Subject to the discussion of backup withholding and FATCA below, any gain realized by a non-U.S. holder on the sale or other disposition of our ordinary shares generally will not be subject to U.S. federal income tax unless:

 

    the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a U.S. permanent establishment of the non-U.S. holder);

 

    the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or

 

    we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes and certain other conditions are met.

A non-U.S. holder described in the first bullet point immediately above will be subject to tax on the gain derived from the sale or other disposition in the same manner as if the non-U.S. holder were a United States person as defined under the Code. In addition, if any non-U.S. holder described in the first bullet point immediately above is a foreign corporation, the gain realized by such non-U.S. holder may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual non-U.S. holder described in the second bullet point immediately above will be subject to a 30% (or such lower rate as may be specified by an applicable income tax treaty) tax on the gain derived from the sale or other disposition, which gain may be offset by U.S.-source capital losses even though the individual is not considered a resident of the United States.

Generally, a U.S. corporation is a “United States real property holding corporation” if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We believe we are not and do not anticipate becoming a “United States real property holding corporation” for U.S. federal income tax purposes.

U.S. Federal Estate Tax

Ordinary shares held by an individual non-U.S. holder at the time of death will be included in such holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Information Reporting and Backup Withholding

U.S. Holders

In general, information reporting will apply to dividends in respect of our ordinary shares and the proceeds from the sale, exchange or other disposition of our ordinary shares that are paid to you within the United States

 

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(and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of exempt status or fail to report in full dividend and interest income.

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.

Non-U.S. Holders

Distributions paid to a non-U.S. holder and the amount of any tax withheld with respect to such distributions generally will be reported to the IRS. Copies of the information returns reporting such distributions and any withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty.

A non-U.S. holder will not be subject to backup withholding on dividends received if such holder certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale or other disposition of our ordinary shares made within the United States or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.

Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, if any, provided the required information is timely furnished to the IRS.

Additional Withholding Requirements

Under Sections 1471 through 1474 of the Code (such Sections commonly referred to as “FATCA”), a 30% U.S. federal withholding tax may apply to any dividends paid on our ordinary shares and, for a disposition of our ordinary shares occurring after December 31, 2018, the gross proceeds from such disposition, in each case paid to (i) a “foreign financial institution” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) its compliance (or deemed compliance) with FATCA (which may alternatively be in the form of compliance with an intergovernmental agreement with the United States) in a manner which avoids withholding, or (ii) a “non-financial foreign entity” (as specifically defined in the Code) which does not provide sufficient documentation, typically on IRS Form W-8BEN-E, evidencing either (x) an exemption from FATCA, or (y) adequate information regarding certain substantial U.S. beneficial owners of such entity (if any). If a dividend payment is both subject to withholding under FATCA and subject to the withholding tax discussed above under “—Consequences to Non-U.S. Holders—Dividends,” the withholding under FATCA may be credited against, and therefore reduce, such other withholding tax. You should consult your own tax advisors regarding these requirements and whether they may be relevant to your ownership and disposition of our ordinary shares.

 

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UNDERWRITING

Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for which Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. are acting as representatives, have severally agreed to purchase, and we and the selling shareholders have agreed to sell to them, severally, the number of shares indicated below:

 

Name

   Number of Shares  

Morgan Stanley & Co. LLC

  

Citigroup Global Markets Inc.

  

Total:

  
  

 

 

 

The addresses of the of the representatives are as follows: for Morgan Stanley & Co. LLC, 1585 Broadway, New York New York 10036 and for Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10036.

The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the ordinary shares subject to their acceptance of the shares from us and the selling shareholders. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the ordinary shares offered by this prospectus are subject to the approval of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the ordinary shares offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option described below.

The underwriters initially propose to offer part of the ordinary shares directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $         per share under the public offering price. After the initial offering of the ordinary shares, the offering price and other selling terms may from time to time be varied by the representatives. Sales of ordinary shares made outside of the United States may be made by affiliates of the underwriters.

The selling shareholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to              additional ordinary shares at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the ordinary shares offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional ordinary shares as the number listed next to the underwriter’s name in the preceding table bears to the total number of ordinary shares listed next to the names of all underwriters in the preceding table.

 

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The following table shows the per-share and total public offering price, underwriting discounts and commissions, and proceeds before expenses to us and the selling shareholders. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option.

 

            Total  
     Per
Share
     No
Exercise
     Full
Exercise
 

Public offering price

   $                   $                   $               

Underwriting discounts and commissions to be paid by us

        

Underwriting discounts and commissions to be paid by the selling shareholders

        

Proceeds, before expenses, to us

        

Proceeds, before expenses, to the selling shareholders

   $                   $                   $               

The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $        million. We have agreed to reimburse the underwriters for their expenses relating to clearance of this offering with the Financial Industry Regulatory Authority up to $        .

The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of ordinary shares offered by them.

We intend to apply to list our ordinary shares on the              under the trading symbol “DESP.”

We, all of our directors and executive officers and substantially all of our existing shareholders have agreed that, without the prior written consent of Morgan Stanley & Co. LLC and Citigroup Global Markets Inc. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus (the “restricted period”):

 

    offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares;

 

    file any registration statement with the Securities and Exchange Commission relating to the offering of any ordinary shares or any securities convertible into or exercisable or exchangeable for ordinary shares; or

 

    enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the ordinary shares,

whether any such transaction described above is to be settled by delivery of ordinary shares or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any ordinary shares or any security convertible into or exercisable or exchangeable for ordinary shares.

Morgan Stanley & Co. LLC and Citigroup Global Markets Inc., in their sole discretion, may release the ordinary shares and other securities subject to the lock-up agreements described above in whole or in part at any time.

In order to facilitate the offering of the ordinary shares, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the ordinary shares. Specifically, the underwriters may sell

 

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more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option described above. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the ordinary shares in the open market after pricing that could adversely affect investors who purchase ordinary shares in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, ordinary shares in the open market to stabilize the price of the ordinary shares. These activities may raise or maintain the market price of the ordinary shares above independent market levels or prevent or retard a decline in the market price of the ordinary shares. The underwriters are not required to engage in these activities and may end any of these activities at any time.

We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.

A prospectus in electronic format may be made available on websites maintained by one or more underwriters participating in this offering. The representatives may agree to allocate a number of ordinary shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.

In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad a